The U.S. dollar has been strengthening at tremendous rates over the last few months. This has forced the prices of several commodities to nosedive over the last few months, as their denomination currency rallied against other major currencies.
Interestingly, some of the companies in the Crude Oil sector remain steady a good example being ConocoPhillips (COP, Financial), while Exxon Mobil (XOM, Financial) and Chevron (CVX, Financial) appear to have recovered slightly from their September plunge. Nonetheless, the general outlook of the industry for now appears to be heading south as the dollar continues to strengthen.
Right now, Crude Oil WTI is trading at a paltry $73, the lowest level reached in over four years. Indeed, you will have to go back to 2010 to find a time when the black gold traded at such low levels. This comes despite the increasing tensions in the Middle East and Russia, the two regions that contribute a significant chunk of the global oil production.
Therefore, it does defy the odd as to how the Forex Strength of the USD against major currencies like the euro (EUR), the ausi (AUD) the Japanese yen (JPY) and the Russian ruble (RUB) among others, has been able to outweigh the impact of the tensions in these oil rich regions.
Now, based on recent data, it appears as though the Crude Oil WTI could be heading for a new five-year low, at $70 per barrel as the U.S. dollar continues to strengthen on the promise of assured economic recovery. In fact, the $70 mark could be reached soon enough that, during the festivities, projections could be shifted towards the $65 mark.
However, after the U.S. labor department issued a tepid economic data today, some currencies like the euro did seem to firm up against the dollar. This is an indication that, despite the recent rally, there could be times that the U.S. dollar could dip in within the main trend.
While the overall jobless claims data declined impressively to a 14-year low of 2.31 million, the number of new people applying for jobless claims rose to 313,000 last week an increase of 21,000. This was the highest level since the first week of September.
The general view is that, despite the dollar’s recent run, there is still some hope for the Crude Oil WTI bulls that things could turn in their favor in due time. Nonetheless, the overall outlook remains weak with new targets now set at $70 per barrel.
If you were to apply a backtesting strategy as to when a similar case happened, then you would have to go back to the 2008-2009 global financial crises, when everything tanked to put the global markets under enormous pressure.
This time around, though, there is nothing similar to what the market was undergoing back in 2008/2009, which makes it unrealistic looking at the current Crude Oil WTI price levels.
Conclusion
The dollar remains the strongest currency for now, and this is counting against the crude oil sector, with the companies in the industry likely to face significant headwinds in growing top line, at least over the next few months.
Therefore, having already fallen below $75 per barrel, the $70 mark appears to be the next realistic stop for the precious commodity.
