Crude Oil Market: Why the US Dollar Is Important



Importance of the US dollar

Commodities like gold and crude oil are influenced by the US dollar. These commodities are traded in the global market. So, the commodities are denominated in the US dollar. A depreciating US dollar is positive for crude oil producers and vice versa. The recent fall in the US dollar supported crude oil prices. It resulted in higher crude oil prices. Higher prices are positive for integrated oil and gas companies like Chevron (CVX), ExxonMobil (XOM), and BP (BP).

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US Dollar Index

The US Dollar Index consists of six global currencies. The currencies are the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc. The US dollar appreciated in 2014 due to the improving US economy and the consensus of an interest rate hike by the Federal Reserve in the short term.

On June 18, 2015, the US Dollar Index fell by 0.6% to hit a four-week low. The US Dollar Index fell due to a lack of clear cues about an interest rate hike by the Federal Reserve. Market surveys suggest that the Federal Reserve will hike the rate in September 2015.

The consensus of an interest rate hike will support the US dollar. Central banks in Europe, Japan, and China will probably reduce interest rates in 2015. Pumping liquidity into the economy will likely widen the interest rate differentials. This will also support the US dollar. The strong US dollar will continue to put pressure on crude oil prices.

Oil and gas ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Select Sector SPDR Fund ETF (XLE) are also impacted by lower crude oil prices. These ETFs consist of oil and gas producing companies.


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