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Will Saudi Arabia, Iraq, and Kuwait Push Crude Oil Prices?

PART:
1 2 3 4 5 6 7
Part 2
Will Saudi Arabia, Iraq, and Kuwait Push Crude Oil Prices? PART 2 OF 7

US Dollar: How It Impacts Crude Oil Prices

Crude oil prices 

WTI (West Texas Intermediate) crude oil (SCO) (FXN) (IEZ) futures contracts for May delivery fell 0.9% and were trading at $52.7 per barrel in electronic trade at 4:45 AM EST on April 17, 2017.

Crude oil prices are near a one-month high. Broader markets such as the S&P 500 (SPY) (SPX-INDEX) and Dow Jones are near all-time highs. Bullish momentum in the US stock market could support oil demand and oil prices. For more on crude oil prices, read Part 1 and Part 4 of this series.

US Dollar: How It Impacts Crude Oil Prices

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US Dollar Index, the Fed, and President Trump  

The US Dollar Index fell 0.3% to 100.5 on April 13, 2017. The US stock market was closed on April 14, 2017, due to Good Friday. The US dollar fell ~0.6% in the past week. The dollar fell due to a drop in US retail sales for the second straight month in March 2017. US retail sales fell 0.2% and 0.3%, respectively, in March and February 2017. The Consumer Price Index fell 0.3% to 1.8% in March 2017—the first decline in 13 months, according to the US Department of Labor.

The dollar hit a high of 103.8 on January 3, 2017—the highest level in 14 years. The dollar (UUP) rose due to the following factors:

  • the Fed’s interest rate hike by 25 basis points on March 15, 2017, to 0.75%–1%
  • improving US jobs market
  • expectations of fiscal stimulus and possible tax reforms under President Trump
  • the Fed’s interest rate hike by 25 basis points on December 14, 2016, to 0.50%–0.75%

US dollar and crude oil  

The US dollar and crude oil (BNO) (PXI) are usually inversely related. A fall in the US dollar makes crude oil more economical for oil importers. When the dollar falls, crude oil prices rise.

Volatility in crude oil prices impacts oil and gas producers’ earnings such as Noble Energy (NBL), Carrizo Oil & Gas (CRZO), Chevron (CVX), and Cobalt International Energy (CIE).

Goldman Sachs (GS) predicts an interest rate hike in June 2017 and September 2017. The expectation of multiple interest rate hikes in 2017 could push the dollar higher. The strong US dollar is expected to be one of the key downside catalysts for crude oil prices in 2017.

In the next part, we’ll discuss the energy calendar for this week.

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