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There’s more to oil’s plunge than record-high supplies

Some blamed crude-oil’s decline Thursday on the record-high supplies in the U.S. But there is a little more to it than that.

True, the U.S. Energy Information Administration reported on Wednesday a seventh straight weekly climb in crude inventories to their “highest level for this time of year in at least the last 80 years.”

But prices for crude that day on the New York Mercantile Exchange actually rallied by 3.5%, with analysts considering whether prices have bottomed and fretting over the declines in petroleum-product stockpiles.

On Thursday, April crude CLJ5, +2.80% on Nymex lost 5.5% to settle at $48.17 a barrel, its lowest settlement in nearly a month.

So why did prices fall?

The short answer is the dollar. The ICE U.S. dollar index DXY, +0.00% rallied to itshighest level since 2003. A stronger dollar tends to dull demand for dollar-denominated commodities such as crude.

As Nymex crude prices fell, its price spread compared with the European benchmark Brent crude LCOJ5, +4.05% widened. April Brent fell a much smaller 2.6% to settle at $60.05.

So why is the spread so wide in the first place? U.S. crude supplies are at a record level.

Myra Saefong