Oil prices could slide towards £20-$25 a barrel, warns Morgan Stanley, as the price of brent crude dropped another $2 to £31 a barrel yesterday.
Brent, the global marker for the oil price, dropped more than 5 per cent yesterday, adding to last week’s 10 per cent losses and creeping towards $30 a barrel.
However, Morgan Stanley has warned the pain is not likely over and we could see oil prices drifting into the $20s, reports the Financial Times.
In particular Morgan Stanley analyst Adam Longson says that the moves in China to devalue the currency could spark another downward spiral for oil prices.
“If rapid devaluation occurs, a 15 per cent [China Yuan] depreciation alone could send oil into the $20s,” he says. “A rapid China devaluation scenario could lead to another round of commodity weakness and send oil into the $20s. $20-$25 oil price scenarios are possible simply due to currency.”
China fuelled some of the oil price boom in recent years, when demand spiked in the country. While a weaker yuan makes exports from the country more attractive, it hampers the import-led oil market.
A number of other banks, including Goldman Sachs, have already warned that prices could hit reach $20 a barrel, due to oversupply issues.