Morgan Stanley experts anticipate a further downtrend in the global market of crude oil. This time they expect the prices to crash by 25% more in the near future. Most of the downward pressure comes from the strengthening U.S. Dollar, which is getting stronger mostly thanks to the Fed’s decision to raise the interest rates for the first time in 9 years. This interest rate hike made dollar assets more profitable and attractive for investors, which are fleeing emerging markets and seeking safe-haven assets like U.S. bonds.
The experts say that oil prices have been sensitive to the U.S. Dollar exchange rate for decades. This leads them to believe that as the American currency is likely to get even stronger in the coming months, oil prices will have to give up and go down 10% to 25% more, especially if USD gets at least 5% stronger.
Morgan Stanley experts say that the initial driver for the oil crash was all about the increasing oversupply but later on, as the imbalance between the global supply and demand for crude oil were priced into the market, the further downtrend was driven by the strengthening dollar, which is negatively correlated with oil and many other commodities since those commodities are traded in USD.
At the same time, there are some other factors influencing oil prices indirectly. In particular, the experts say that if the Chinese Yuan devalues by 15%, the U.S. Dollar may well get 3,2% stronger only because of that, which means extra pressure on oil prices. With that being said, oil prices may well go below $30/b and consolidate under this level, especially as the prices are already close to it. Yet, this isn’t the worst-case scenario for the global market of crude oil since it implies minor gains for the U.S. Dollar. However, if most other currencies belonging to emerging and developed economies start devaluing along with the Renminbi, the U.S. Dollar may strengthen a lot, thereby triggering another oil market crash.
Goldman Sachs also made a gloomy forecast. The local experts predict a move down to $20/b on oversupply and stronger dollar.
