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US light crude futures plunged 1.6% in mid-afternoon trading in New York, falling to around $93.50 per barrel, after hitting its lowest price in two weeks earlier in the day.
Oil is headed for a weekly loss, depressed by Ben Bernanke’s mid-week comments suggesting the Fed is ready to reduce its monetary stimulus later in the year.
These comments have put pressure on the price of oil in two ways. First, the reduction of stimulus should mean less support for demand. Second, increased expectations of early tapering have boosted the US dollar. As crude contracts are denominated in dollars, it makes the commodity less attractive as an alternative investment when purchased by other currencies, hurting demand outside the US.
The dollar index, a basket of six major currencies against the US currency, is up over 0.5% today.
Worries over how demand for energy in China will hold up is also causing some headwind for oil. A preliminary PMI survey of Chinese manufacturing in June came in at 48.3 yesterday, suggesting that the manufacturing sector is shrinking, which raises the chances of a hard-landing for the Chinese economy. China is the second largest oil consumer in the world behind the US.