The weak dollar is the ‘only support’ for oil prices, analyst says
Updated: Oct 7, 2020
By Huileng Tan
“As far as fundamentals are concerned, there is really not much to move oil around either way, which is why we have seen it pretty range-bound but within that, continuing to grind higher because of a weaker dollar,” said Vandana Hari, founder of Vanda Insights, an energy consultancy. “That’s the only support, I would say.”
Oil prices are likely to continue creeping up simply due to a weak dollar, an analyst said on Thursday.
“As far as fundamentals are concerned, there is really not much to move oil around either way, which is why we have seen it pretty range bound, but within that continuing to grind higher because of a weaker dollar,” said Vandana Hari, founder of Vanda Insights, an energy consultancy. “That’s been the only support, I would say.”
Like most commodities traded internationally, oil is denominated in dollars, so a weaker greenback lends support to prices.
In March, a futures contract for U.S. crude prices dropped more than 100% and turned negative for the first time in history as demand collapsed due to the coronavirus pandemic.
There was a slight rebound in crude oil prices through May and June as economies reopened after lockdowns to contain the coronavirus. But oil demand has fallen in July and August in some countries like India, while flatlining in others, she told CNBC’s “Squawk Box Asia.”
On Thursday, international benchmark Brent crude oil futures were trading around $44.50 a barrel at 10:36 a.m. HK/SIN, while U.S. West Texas Intermediate futures were around $41.65 a barrel.
Hari said the greenback is likely to remain under pressure through 2021 as it would be in the interest of the U.S. economy to keep the dollar lower. This will give some lift to crude oil prices.
U.S. President Donald Trump’s efforts “to keep the U.S. stock markets buoyant” will also help, said Hari. That would include lots of monetary and fiscal stimulus and positive news on a coronavirus vaccine.
“These measures will keep risk-on trade, it will keep sentiment quite buoyant in larger global financial markets,” said Hari. “To some extent, I think it will support sentiment in oil, it will prop up oil.”
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