A rising dollar tends to depress oil prices, since the commodity is priced in dollars. The dollar surged to a seven-year high against the yen and a two-year high against the euro last week.
And further gains by the greenback could push oil down more than 50 percent to $30 a barrel, says Raoul Pal of investment advisory service Global Macro Investor.
"The probability of a dollar breakout is very big," he told CNBC
. The dollar may drop "much more rapidly than we've seen for many years, and that would lead oil to go much further," Pal said. "So oil prices could go down to $30, $40 easily."
December West Texas Intermediate crude contracts settled at $77.08 a barrel on the Nymex Wednesday, after hitting a three-year low of $75.84 last week.
Oil prices have dropped amid bulging supply and sluggish demand. U.S. oil output has reached the highest level in at least 31 years. And stagnant economies in the eurozone and Japan are depressing oil demand there.
"In addition, you've got the biggest-ever position in the commodity in history, I think six standard deviations above its mean was the long positioning in oil," Pal said. "Then you put that into context with the dollar rally, and commodities tend to act the opposite to the dollar, so if the dollar rallies, oil falls."
Speculation abounds that OPEC might announce production cuts at is Nov. 27 meeting. But "OPEC cannot and will not take the pain necessary to correct the imbalance" between supply and demand, Gary Ross, CEO of Pira Energy Group, told the Financial Times
Saudi Arabia has shown in recent weeks that it is more eager to slash prices than production, as it seeks to retain market share. It has recently reduced prices to customers around the world.
Esteemed energy economist Philip Verleger predicted in a commentary obtained by the Times that Brent crude would slide at least to around $70. December Brent futures settled at $80.04 Wednesday on the Nymex.
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