US Dollar Index
The US dollar appreciated against the basket of currencies in the early trade on June 29, 2015. The Greece default crisis supported the US dollar. However, the US Dollar Index fell and closed at 94.79 at the close of trade yesterday.
Globally-traded commodities, like gold and crude oil, are denominated in the US dollar. An appreciating dollar makes dollar-denominated commodities expensive and vice versa. The consensus of a strong dollar due to the interest rate hike and mixed global monetary policies will support the US dollar. This will continue to put pressure on crude oil.
The strong dollar and oversupply consensus will continue to add pressure to crude oil prices. In May 2015, Iran produced 2.8 MMbpd (million barrels per day). The nuclear accord between Iran and the world heavyweights could see oil sanctions lifted from Iran. Iran could raise its oil output by 750,000 bpd (barrels per day) to 1 MMbpd within six months to one year of lifting the sanctions. This means an excess of 1 MMbpd in the crude oil market. The deadline for this deal is June 30, 2015. Market surveys suggest a possible delay in the deal, but last minute approvals could push crude oil lower.
Oversupply factors could see crude oil trade lower. Depressed crude oil prices will impact oil producers like Abraxas Petroleum (AXAS), Kosmos Energy (KOS), and Newfield Exploration (NFX). They account for 5.06% of the Energy Select Sector SPDR ETF (XLE). These stocks have a crude oil production mix that’s more than 53% of their total production. Energy ETFs like XLE and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) are also affected by volatility in the crude oil market. These ETFs fell by 1.89% and 3.23%, respectively, in yesterday’s trade.