Dollar Bedevils Oil Price | Russell T. Rudy Energy LLC
The world-wide oil glut has been blamed for the collapse in oil prices and justifiably so. “World Oil” points out that Goldman Sachs has recently forecast $20 oil based on oversupply and the risk of running out of domestic storage capacity. According to the U. S. Energy Information Administration the major domestic terminal at Cushing, OK, has a working capacity of 73 million barrels and current inventory is at 63.9 and growing.
Now, fellow investment banker, Morgan Stanley, concurs with Goldman’s price call, but for a very different reason. In a recently issued report, Morgan Stanley blames the strengthening dollar. The recent decline in the Chinese equity markets has had a two-pronged, negative effect on oil. Investors are losing confidence in the strength of Chinese crude oil demand. However, more importantly in Morgan Stanley’s view, flight from the yuan to the dollar has strengthened the dollar. Consequently, fewer dollars are now required to buy a barrel of oil, and the dollar denominated price adjusts lower to reflect this.
The Morgan Stanley analysts feel that the global oil glut might have pushed prices below $60, but the drop from $55 to $35 is primarily attributable to the strengthening dollar. The report goes on to say “Given the continued U. S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency. The U. S. dollar and non-fundamental factors continue to drive oil prices.”
The report concludes “Oil in the $20s is possible, but not for the reasons often cited. It’s not about deteriorating fundamentals.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/01/11/oil-seen-heading-to-20-by-morgan-stanley-on-dollar-strength .
