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How US Dollar Could Influence Crude Oil Prices This Week

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Sep. 6 2016, Published 1:09 p.m. ET

Crude oil prices  

October West Texas Intermediate crude oil futures contracts rose by 3.0% and settled at $44.44 per barrel on September 2, 2016. Prices rose due to the weak US dollar index and short covering. Brent crude oil futures also rose by 3.0% and closed at $46.83 per barrel.

The United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) rose by 1.8% and 3.3%, respectively, on September 2, 2016.

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US Dollar Index 

The US Dollar Index depreciated after the release of US jobs data on September 2, 2016. This supported crude oil prices. Crude oil prices ended their four-day losing streak on the same day. However, the US Dollar Index rose by 0.2% at the end of the day on September 2, 2016. The PowerShares DB US Dollar Index Bullish ETF (UUP) tracks the performance of the US dollar. It also rose by 0.24% on the same day.

On September 2, 2016, the US Labor Department reported that non-farm payrolls rose by 151,000 in August 2016. A Reuters poll estimated that non-farm payrolls could have risen by 180,000 for the same period. The less-than-expected rise in US employment data pressured the US dollar.

US dollar and crude oil

The US dollar and crude oil are usually inversely related. The depreciation of the US dollar makes crude oil more economical for oil importers and vice versa. On September 5, 2016, the US dollar index was trading at 95.74 levels. The US Dollar Index rose to a four-month high of 97.5 on July 25, 2016.

A recent survey suggested that 59% of traders expect a possible interest rate hike from the Fed by the end of the year. However, the recent jobs data may raise concerns about an interest rate hike from the Federal Reserve. So, volatility in the US dollar could swing crude oil prices in 2016.

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Impact on stocks and ETFs 

The roller coaster ride in crude oil prices impacts the earnings of oil and gas exploration and production companies such as Synergy Resources (SYRG) and Sanchez Energy (SN). It also impacts ETFs and ETNs such as the Direxion Daily Energy Bear 3x (ERY) and the United States Brent Oil ETF (BNO). 

What’s in this series?  

This series will focus on the important oil producers’ meeting, Cushing crude oil inventories, the US crude oil rig count, the Commodity Futures Trading Commission’s Commitments of Traders report, and some crude oil price forecasts.

In the next part of this series, we’ll look at the energy calendar for the crude oil and natural gas market.

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