Crude oil prices
October West Texas Intermediate crude oil futures contracts fell 3% and settled at $44.9 per barrel on September 13, 2016. Prices fell ahead of the US crude oil inventory report, which will release on September 14, 2016. Brent crude oil futures also fell 2.5% and closed at $47.1 per barrel. The United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) fell by 2.5% and 5%, respectively, on September 13, 2016.
US Dollar Index
The US Dollar Index appreciated 0.47% to 95.5 on September 13, 2016. The PowerShares DB US Dollar Index Bullish ETF (UUP) tracks the performance of the US dollar. The ETF also rose 0.4% on the same day, which pressured crude oil prices.
On Monday, September 12, 2016, the Federal Reserve’s dovish comments pressured the US dollar. Consequently, crude oil prices rose the same day. The US Federal Reserve is concerned about the low inflation rate, which is below 2%. Thus, the Fed has been hesitant about raising interest rates.
On September 13, 2016, the U.S. Census Bureau reported that US household median income grew 5.2% to $56,512 in 2015 compared to 2014. It’s the highest level since 1999. The rise in household income could support inflation, which in turn could support an interest rate hike. This is bearish for crude oil.
US dollar and crude oil
The US dollar and crude oil are usually inversely related. The appreciation of the US dollar makes crude oil more expensive for oil importers and vice versa. On September 14, 2016, the US dollar index was trading at 95.6 levels. The US Dollar Index rose to a four-month high of 97.5 on July 25, 2016.
A recent survey suggested that 54% of traders expect a possible interest rate hike from the Fed by the end of the year. Goldman Sachs is bullish on the US dollar despite dovish comments about an interest rate hike from the Federal Reserve. So, volatility in the US dollar could swing crude oil prices in 2016.
Impact on stocks and ETFs
The ups and downs in crude oil prices impact the earnings of oil and gas exploration and production companies such as Synergy Resources (SYRG), WPX Energy (WPX), and Sanchez Energy (SN). Prices also impact ETFs and ETNs such as the Direxion Daily Energy Bear 3x (ERY), the iShares U.S. Oil Equipment & Services ETF (IEZ), the DB Crude Oil Double Short ETN (DTO), and the United States Brent Oil ETF (BNO).
What’s in this series?
This series will focus on supply and demand gap estimates, the oil producers’ meeting, the American Petroleum Institute’s crude oil and product inventory report, Cushing crude oil (UWTI) (SCO) (USL) 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.