US Dollar Index and crude oil
A rising interest rate is related to appreciation in the currency. Since crude oil is priced in the US dollar, the rising US Dollar Index will likely have a negative impact on crude oil’s price.
The high US Dollar Index is already contributing to crude oil’s fall—apart from OPEC’s (Organization of the Petroleum Exporting Countries) high level of production. The US Dollar Index rose by 9.4% on a YTD (year-to-date) basis as of December 16.
Falling crude oil
On a YTD basis, USO fell by 46.0%. Companies operating with a production mix of more than 90% in crude oil like Kosmos Energy (KOS) and Denbury Resources (DNR) fell by 35.6% and 74.3%, respectively, on a YTD basis. After the interest rate policy announcement, Denbury Resources fell by 8.7% on December 16.
The Energy Select Sector SPDR ETF (XLE) fell by 21.80%. Upstream companies like ConocoPhillips (COP), EOG Resources (EOG), and Anadarko Petroleum (APC) fell by 28.5%, 17.7%, and 42.2%. ConocoPhillips, EOG Resources, and Anadarko Petroleum operate with a production mix of 46%, 48%, and 35% in crude oil.
In the next part, we’ll see how upstream can be impacted more after the rate hike than any other subindustry in energy.