Dollar surge triggers oil rout as Brent crude tumbles

*North sea oil trading below $95 per barrel as the US dollar hitting a four-year high weighs on demand

01 October 2014, London – Oil prices have tumbled as the US dollar hit a new four-year high on the back of the strength of the world’s largest economy and bets that the Federal Reserve will tighten monetary policy at a faster pace than originally expected.

Federal-ReserveBrent crude – a global benchmark of oil from 15 fields in the North Sea – continued to trade on Wednesday below its $95 per barrel resistance level after the dollar had surged against a basket of global currencies. Because major commodities such as oil are priced in dollars, when the dollar strengthens it makes these resources more expensive for buyers holding other currencies, which suppresses demand.

However, concerns over the weakening Chinese economy as Beijing grapples with how to rein in demonstrations in Hong Kong are also at the forefront of concerns worrying investors.

“A glut of supply and muted demand against a backdrop of decelerating growth in China and a more self-sufficient US have contributed to price weakness across the commodity complex,” said Jade Fu, Investment Manager at Heartwood Investment Management. “Even heightened geopolitical unrest in various parts of the world this year has failed to trigger a sustained rally in commodity prices.”

The price of Brent crude has collapsed since June when it hit its year high above $115 per barrel. The pullback in Brent has partly been due to return of high-grade Libyan oil – preferred by European refiners – to the market after supplies were reduced to a trickle of around 200,000 barrels per day (bpd) earlier this year.

However, the Organisation of Petroleum Exporting Countries, OPEC – which controls about a third of global supply – remains split over whether to trim output to defend oil above $90 per barrel. The group of 12 producers including Saudi Arabia, Iran and Venezuela, is next schedule to meet in November to discuss its output ceiling.

US West Texas Intermediate (WTI) crude also dropped amid wider concerns over a glut of supply as domestic production North America continues to surge.

“Fundamentally, there appears to be no short-term upward price pressure in WTI; after all, the shale revolution has completely changed the oil trade picture in the US. In 2005, the US was importing 60pc of its oil compared with 3pc today,” said Fu.
*Andrew Critchlow – The Telegraph

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