The Commodity Currency Plunge Is Making the Oil Crash Even Worse

(Bloomberg) Crude bulls, stung by the worst July on record, should expect further pain as slumping commodity currencies cut production costs.

Drillers from Russia to Canada, the world’s second- and fourth-biggest oil producers, sell crude in U.S. dollars while paying most operating costs in local currencies. The Canadian dollar dropped to an 11-year low against its U.S. counterpart this month while the Russian ruble trades near a six-month low.

Global oil supply has proven resilient. A 60 percent decline in U.S. dollar prices since June 2014 hasn’t curbed U.S. production, which is near the highest level in four decades. Iraq is producing at a record pace and Russian oil output reached a post-Soviet high this year. The world’s oil glut will last through 2016, the International Energy Agency said in an Aug. 12 report.

“The cross-commodity downdraft led by oil, gold and copper has hit producer currencies hard,” Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by phone. “The weaker their currencies get versus the dollar, the lower their costs. This further weighs on commodity prices and just adds to the negative spiral.” .................(more)

http://www.bloomberg.com/news/articles/2015-08-17/oil-bull-agony-prolonged-as-commodity-currency-drop-extends-glut