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Concerns over Global Crude Glut pulls Oil Prices towards US$40 a Barrel

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Published on : Nov 17, 2015

Amid concerns regarding the continuing glut of crude and a stronger dollar, US oil prices dropped to almost US$ 40 per barrel on Tuesday. 

Sweet and light crude to be delivered next month recently dropped 1.8 per cent or 75 cents to reach US$ 40.99 per barrel on the New York Mercantile Exchange. The global benchmark Brent went down 1.8 per cent or 82 cents to settle at US$ 43.74 per barrel on ICE Futures Europe.

Tracking the dollar against a set of other currencies, the Wall Street Journal Dollar Index went up 0.1 per cent on Tuesday amid expectations that the Federal Reserve might increase the rates of interest in December. Oil is priced in dollars and as the greenback appreciates, oil becomes costlier for holders of other currencies. 

Oil analyst Michael Poulsen at Global Risk Management said that the strengthening of the dollar is weighing in on prices of oil since investors have been increasingly optimistic about the raising of interest rates by the Federal Reserve in the meeting scheduled in December. 

In the past year, prices of oil have plummeted owing to increasing supplies across the world have overshadowed the crude demand. In recent months, some producers like the United States have reduced their production while others such as Russia and Saudi Arabia have continued to supply crude at higher prices in order to retain their share in the market. 

Stockpiles of US oil have risen for seven consecutive weeks to reach near-record highs and some analysts anticipate that the weekly inventory data due to be released on Wednesday will reveal that last week, crude supplies rose once again. 

If oil drops to the US$ 40 per barrel level on the New York Mercantile Exchange, prices could drop to new lows of mid US$ 30s, according to some analysts. 

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