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How the US Dollar and Brexit Are Affecting Crude Oil Prices

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Nov. 20 2020, Updated 11:12 a.m. ET

Crude oil prices 

WTI (West Texas Intermediate) crude oil futures contracts for August delivery rose by 2% and settled at $50.11 per barrel on Thursday, June 23, 2016. Brent crude oil futures also rose by 2.1% and closed at $50.91 per barrel on the day. Prices rose due to the falling US Dollar Index and expectations that Britain would stay in the EU (European Union). The United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) also rose 2% and 3.5%, respectively, on June 23.

[marketrealist-chart id=1400332]

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US dollar index 

The US Dollar Index fell by 0.2% on Thursday, June 23. This was mainly due to the rise of the pound sterling as a result of early Brexit polls, which indicated that the United Kingdom might have stayed in the EU. However, the fall of the US dollar was limited due to a drop in US jobless claims. The deprecating dollar makes crude oil cheaper for oil-importing economies. The PowerShares DB US Dollar Index Bullish Fund (UUP) tracks the performance of the US dollar. The above chart of USO and UUP shows the relationship between the US dollar and crude oil.

Brexit

Results of the British referendum rolled in slowly and eventually showed that Britain voted in favor of exiting the EU. As a result, crude oil prices tumbled almost 5% and were at $47.74 per barrel at 2:40 AM EST on June 24.

Pro-Brexit supporters suggest this will benefit the United Kingdom over the long term. The “leave” group secured around 51.9% of the vote. Meanwhile, traders expect that Brexit will impact global stock exchanges, the currency market, and the bond market in the short term. This should boost the US dollar, which is a safe-haven currency. On June 24, the US Dollar Index rose almost 3%—its biggest one-day rally since 1978. The appreciation of the US dollar and economic turmoil in the United Kingdom should impact demand for crude oil. It should have a negative impact on crude oil prices.

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High Brent and WTI crude oil prices

On June 8, Brent crude oil prices hit $52.51 per barrel—the highest closing price since early October 2015. On the same day, US crude oil prices tested $51.53—the highest level since July 2015. Read What Are Key Bullish Catalysts for Crude Oil Prices This Week? and What Drove the Crude Oil Demand in Asia? to learn more.

The roller-coaster ride in crude oil prices impacts refiners and oil producers like Cobalt International Energy (CIE), Valero Energy (VLO), and Northern Oil & Gas (NOG). They also impact ETFs and ETNs such as the iShares US Oil Equipment & Services ETF (IEZ) and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).

Series focus 

In this series, we’ll discuss Cushing crude oil inventories, the US crude oil rig count, and crude oil price forecasts. In the next part of this series, we’ll look at Cushing crude oil inventories and how they impact crude oil prices.

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