Dollar strength could soon become an ‘unbearable burden’

Daniel Acker | Bloomberg | Getty Images

A worker on a an oil drill near New Town, North Dakota.

The prospect of continued strength in the U.S. dollar over the coming months should constitute an even greater concern to bullish oil traders than an escalating trade war between the world’s two largest economies, an analyst told CNBC on Monday.

Investors are currently seen weighing bullish factors that include potential supply disruptions to Iranian crude exports against more bearish indicators, such as broad greenback strength and a ramp-up in production by OPEC and its allied partners.

“There are lots of variables in the oil market, the most important of which is Iran. If 1 million barrels per day or more of Iranian exports go AWOL, the current fragile supply-demand balance will be upended — potentially sending oil prices above the May peak,” Tamas Varga, senior analyst at PVM oil associates, said in a research note published Monday.

“The most obvious thing that could change this bullish view is not the U.S.-China trade war, but the strong dollar that, if (it) lasts, will put (an) almost unbearable burden on consuming countries,” he added.