Stronger dollar weighs on crude oil prices

21 October 2009

Crude oil prices dropped below $79 (£48) on the New York Mercantile Exchange in Asian trading on Wednesday (October 21st), with the commodity's recent gains offset by a stronger dollar.

Conventionally, weakness in the dollar tends to lead to a rise in oil prices as investors look to hard assets such as oil and gold as a hedge against inflation.

But with the greenback on the rise, the need to protect investments in this way becomes less pressing.

Speaking to Bloomberg, David Moore, a commodity strategist at Commonwealth Bank of Australia, explained that oil prices had also been hurt by data from the American Petroleum Institute (API) showing a persistent supply glut.

"The U.S. dollar strengthening has helped pull the oil price off its highs. The API data showed quite a decent build in crude inventories. That’s probably also a dampening influence on the oil price," he explained.

However, the short-term drop is unlikely to have much impact on domestic heating oil prices, as suppliers calculate purchasing and delivery costs over a longer period.

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