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US Dollar near 7-Month High: Will It Pressure Crude Oil Prices?

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Crude oil prices 

November West Texas Intermediate crude oil futures contracts fell 0.8% and settled at $49.94 per barrel on October 17, 2016. Prices fell due to oversupply concerns as OPEC (Organization of the Petroleum Exporting Countries) and Russia were producing crude oil at record levels. Traders are also skeptical about OPEC‘s plans to cap production. Brent crude oil futures fell 0.8% and closed at $51.52 per barrel.

ETFs like the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) fell 0.6% and 1.5%, respectively, on October 17, 2016.

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US Dollar Index 

The US Dollar Index depreciated 0.1% to 97.9 on October 17, 2016. The US Dollar Index hit a seven-month high of 98.1 on October 14, 2016, due to the increased expectations of an interest rate hike by the Fed. The US Dollar Index has risen ~2% so far in October 2016.

The PowerShares DB US Dollar Index Bullish ETF (UUP) tracks the performance of the US dollar. It fell 0.2% on October 17, 2016.

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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.

A recent survey suggested that 65.5% of traders expect an interest rate hike from the Fed by the end of the year. The improvement in the US consumer price index would support an interest rate hike. Thus, volatility in the US dollar could swing crude oil prices in 2016.

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Impact on stocks and ETFs  

The ups and downs in crude oil prices can impact the earnings of oil and gas exploration and production companies like Northern Oil & Gas (NOG), Cobalt International Energy (CIE), and Triangle Petroleum (TPLM).

Prices can also impact ETFs and ETNs such as the Direxion Daily Energy Bear 3x (ERY), the Vanguard Energy ETF (VDE), the United States 12 Month Oil ETF (USL), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), and the United States Brent Oil ETF (BNO).

What’s in this series? 

In this series, we’ll focus on the major 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 this week.

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