US investment bank Morgan Stanley has said oil is likely to fall below $25 a barrel due to new supply from Iran and the increasing strength of the US dollar versus the Chinese yuan.

“Given the continued US dollar appreciation, $20-$25 oil price scenarios are possible simply due to the currency,” the lender said in a note.

Morgan Stanley says a 3.2 per cent increase in the dollar implied a 15 per cent yuan devaluation, and could push down the price of oil by 6-15 per cent, or $2-$5 a barrel.

For 2016, the investment bank has forecast an average price of $49 a barrel for Brent crude.