US dollar appreciation may send oil to as low as $20 a barrel: Morgan Stanley

A rapid appreciation of the US dollar may send Brent oil to as low as $20 a barrel, according to Morgan Stanley. Oil is particularly leveraged to the dollar and may fall between 10 per cent and 25 per cent if the currency gains 5 per cent, Morgan Stanley analysts including Adam Longson said in a research note dated January 11. A global glut may have pushed oil prices under $60 a barrel, but the difference between $35 and $55 is primarily the US dollar, the report says.

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

Brent crude capped its third annual decline in 2015 and has already lost more than 11 per cent so far this year. The Organization of Petroleum Exporting Countries effectively abandoned output limits in December, potentially worsening a global glut, while US stockpiles remain about 100 million barrels above the five-year average.


Oil tumbled last week on volatility in Chinese markets after the country sought to quell losses in equities and stabilise its currency. A 3.2 per cent increase in the US dollar -- as implied by a possible 15 per cent yuan devaluation -- may drive crude in the high $20s, Morgan Stanley said. If other currencies move as well, the shift by both the dollar and oil could be even greater, according to the report.