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Is the Worst Over for the Crude Oil Market?

PART:
1 2 3 4 5 6
Part 3
Is the Worst Over for the Crude Oil Market? PART 3 OF 6

US Dollar Near 13-Month Low: Can It Drive Crude Oil Futures?

US Dollar Index 

The US Dollar Index fell 0.50% to 92.7 on July 31, 2017. It’s the lowest level in the last 13 months. The US dollar fell 2.9% in July 2017, marking the fifth consecutive monthly fall and the longest losing streak since 2011.

The US dollar fell due to the following:

  • doubts whether the Federal Reserve will hike US interest rates again in 2017
  • President Trump’s inability to deliver tax subsidies and fiscal stimulus, which is leading to political uncertainty
  • US GDP growth of ~2.3% in 2Q17 but sluggish wage growth and inflation in June 2017

The PowerShares DB US Dollar Bullish ETF (UUP) tracks the US dollar’s performance. It fell 0.40% to $24.07 on July 31, 2017. It has fallen 9.0% YTD (year-to-date).

US Dollar Near 13-Month Low: Can It Drive Crude Oil Futures?

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US dollar and crude oil 

Crude oil and the US dollar are inversely related. A depreciating US dollar makes crude oil (BNO) (SCO) (USL) more economical for oil importers. Consequently, it helps crude oil prices.

Higher crude oil prices have a positive impact on oil and gas producers such as Stone Energy (SGY), Apache (APA), Noble Energy (NBL), and Bill Barrett (BBG).

US dollar’s high and low 

The US Dollar Index hit a high of 103.8, the highest level in 14 years, on January 3, 2017. On the other hand, the US dollar hit 92.7 on July 31, 2017, the lowest level in 13 months. The US dollar has fallen ~9.0% so far in 2017.

Impact 

Expectations of a weak dollar could push crude oil (XES) (IEZ) (RYE) prices higher, and higher crude oil prices could have a positive impact on oil producers such as Stone Energy (SGY) and Bill Barrett (BBG).

In the next part of this series, we’ll analyze the performance of crude oil prices.

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