Oil could sink to $20 a barrel because of the U.S. dollar

A rapid appreciation of the U.S. dollar may send Brent oil to as low as US$20 a barrel, according to Morgan Stanley.

Oil is particularly leveraged to the dollar and may fall between 10 to 25 per cent if the currency gains 5 per cent, Morgan Stanley analysts including Adam Longson said in a research note dated Jan. 11. A global glut may have pushed oil prices under US$60 a barrel, but the difference between US$35 and US$55 is primarily the U.S. dollar, according to the report.

“Given the continued U.S. dollar appreciation, US$20-US$25 oil price scenarios are possible simply due to currency,” the analysts wrote in the report. “The U.S. dollar and non- fundamental factors continue to drive oil prices.”

Credit to Business Financialpost.com