How Much Effect Does Oil Price Movement Have On The Forex Markets

The Forex market is probably the biggest market in the world because it is open 24/7 and it accommodates players from different part of the world. However, the global Forex market is dependent on many factors outside the core currency markets despite its massive size. The Forex market is currently facing headwinds from the global energy markets as crude oil prices continue to fall. This piece looks at how the current weakness in oil prices is exerting downward pressure of some of the world’s major currencies.

Crude oil prices remain depressed despite OPEC’s best efforts

Crude oil has crashed to a 10-month low after falling 3% in the third week of June. Brent Crude oil is down 16.4% and West Texas Intermediate is down 17.7% in the year-to-date period – crude oil hasn’t fallen this much in the first six months of the year since 1997. The international Brent benchmark has broken down below the $45 support to trade around $44.47 per barrel. U.S. crude in the West Texas Intermediate is now trading $42.13 per barrel. 

The main reason behind the unchecked drop in crude oil prices is that the supply of oil in circulation is more than the demand.OPEC is working hard to find a way reduce the supply of oil the market but the resilience of U.S. shale oil producers has almost rendered OPEC’s efforts null and void. 

Interestingly, investors are worried that OPEC is only making a half-hearted attempt to reduce the supply of oil. Investors believe that OPEC needs to deepen its production cuts or go on a production freeze if its wants to end the supply glut. Lynn Roy, a Lionexo commodities analyst observes that “crude oil is slipping like a knife through butter now, I’ve never seen the outlook for oil look this bad and the end is not in sight.” 

Here’s how the continued weakness in oil could weaken currencies

The decline in crude oil is depressing many currencies and the weakness is particularly obvious in commodity-linked currencies such as Norwegian crown and the Canadian dollar. For instance, the Canadian dollar is down to a three and half-month month low to C1.3165 to the dollar.