Oil prices may fall further in Q4, in line with a stronger US dollar, lower crude demand

Crude oil prices may have further to fall in Q4 of 2011 as a stronger US dollar and lower oil demand dent oil futures appeal as an investment, driven by fears that the world maybe close to a new recession.

US Dollar Strength

The US dollar has jumped back to life this month with the ICE US Dollar Index, which tracks the US dollar against six major world currencies currently trading near 78.190, levels not seen since 17th February.

The main reason for the dollar gains surround a weaker euro which has been dragged lower on debt concerns surrounding EU countries including Greece, Portugal, Ireland, Spain and Italy.

A stronger US dollar makes commodity prices for oil, gold, in fact all commodities loose value whilst the dollar rises as they are all priced in the US unit, making commodities more expensive for buyers using other currencies.

Western Debt Concerns – New Recession?

“The world is staring down the barrel of a new economic catastrophe.” UK Priminister David Cameron said last week, blaming the Eurozone block and the US for the turmoil, saying they must get a grip on their vast debts.

“It’s important that we are clear about the facts. We are not quite staring down the barrel but the pattern is clear. Growth in Europe is stalled. Growth in America is stalled.” he said.

And that’s a problem for oil demand as if growth is stalling, so will demand for crude oil.

“Obviously a weaker eurozone will impact on their oil demand. We can’t see at this point the price of oil wanting to rally significantly higher than where it is on the back of the weak demand coming out of the US, WTI oil will probably trade between $80 and $90 for the near term.” said David Lennox, a resource analyst at Fat Prophets, Sydney.

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