A strong Dollar against all major currencies will prevent any long term sustained rise in crude oil; here's why

Crude oil prices were in any case poised to go up, and the war situation added fuel to fire. The strengthening US Dollar may prevent any long-term rise in oil prices. Also, some countries are in dialogues for oil deals in local currencies – this step will in a way negate any rise in crude oil prices.

Dr. Joseph Thomas, Head Of Research, Emkay Wealth Management decodes the impact of Dollar on oil prices, and what is the way ahead:

In view of the uncertainties around the war and the inability to expand production in the immediate term the pressure on oil prices will continue to be a reality. But, one factor that may be of some consolation is that the Dollar Index is stronger.

A strong Dollar against all major currencies will prevent any long term sustained rise in the prices of commodities especially oil.

It is also likely that the full impact of higher prices may not be felt in global prices as many countries, especially major importers, are looking at activating some of the erstwhile bilateral arrangement for trade designated in local currency terms, which will prevent the full flow of commodities and cash from getting reflected in the market prices.

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The oil prices have been moving up since October 2021, due to two factors. First, the demand for oil reached the pre-pandemic levels which showed a demand growth at a swift pace.

Second, the OPEC+ capacity for additional production and supply was limited. These two things meant that the prices were to move higher naturally and in the normal course.

In October 2021, the highest levels seen in Brent was US$ 83, and thereafter, around the first week of December 2021, the prices slipped to US$ 73 per barrel. Subsequently, the prices continued the upward trajectory and were a shade lower than US$ 100 in February 22.

The outbreak of war in Eastern Europe resulted in a sudden spurt in prices to US$ 128/130 levels by March 7-8, 2022. The only reason for this surge was the outbreak of war and the doubts about the continued supply of oil and gas from Russia which accounts for 10% and 17% respectively of the global supply.

After the disturbances in Eastern Europe, with progress in negotiations, the oil prices again came down to US$ 100. But the US$ 99/100 levels have acted like a strong short-term support, and the prices are back again at US$ 111.

The market has become extremely volatile as reported by oil market participants. The open positions in oil futures is at its lowest levels in seven years.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)