Brent Crude dropped to $31.3 on Monday breaking the $32 support levels that it has held on to since the new year. The price is now 72% lower than the $114 it traded at its peak in July 2014. The latest drop in oil further confirms that the supply glut in the market is still weighing down on oil prices as oil producers scramble for market share in a market that is awash with cheap oil.
A new report by American Bank, Morgan Stanley also explains the relationship between the dollar and the price of oil. According to Bloomberg, the bank in a research paper indicated that “Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent.” It further remarked that “A global glut may have pushed oil prices under $60 a barrel, but the difference between $35 and $55 is primarily the U.S. dollar, according to the report.” The article continued “Given the continued U.S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency,”
This latest analyst is a departure from some of the reasons already put forward for the drop in the price of crude. Analysts had blamed the drop on the supply glut in the market as well as the price war between OPEC and Shale Producers.
