On January 11, the American investment bank Morgan Stanley warned that the price of barrel of oil could fall to $20 as a result of rising US dollar.

“Given the continued US dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency,” said the bank’s analysts in a research note backing this hypothesis with the close correlation between oil prices and dollar. According to them, price of crude could further slide between 10% and 25% if the dollar gains 5% more.

Morgan Stanley also stated that oversupply of oil was not the only reason behind the plunge in oil prices. “Oil in the $20 is possible, but not for the reasons often cited. An oversupply may have pushed oil prices $60 a barrel, but the difference between $35 and $55 is primarily the US dollar”, the report said.

On January 11, prices of oil hit their lowest since December 2003 in New York. After dropping 10% last week, prices of light sweet crude for delivery in February fell $1.75 to $31.41 a barrel on the New York Mercantile Exchange (Nymex), its lowest closure level in 12 years.

The fall is mostly due to China’s current economic slowdown. After last week’s plunge, the Shanghai Index fell more than 5% on Monday. First oil importer worldwide, China is experiencing turmoil in its markets and doubts start to emerge regarding the efficiency of the policies implemented by Beijing to solve the issue.