Crude oil prices
January 2017 WTI (West Texas Intermediate) crude oil futures contracts fell 4% and settled at $46.06 per barrel on November 25, 2016. Brent crude oil futures contracts fell 3.6% and settled at $47.24 per barrel. Crude oil prices fell for the fourth week in the last five weeks. Uncertainty about whether OPEC (Organization of the Petroleum Exporting Countries) would cap or reduce crude oil production at the November 30, 2016, meeting pressured crude oil prices. For more, read Part 4 of this series.
US Dollar Index and Trump
The US Dollar Index fell 0.2% to 101.5 on November 25, 2016. However, it hit 102 on November 24, 2016—the highest level in nearly 14 years. It rose more than 4% in the last three weeks. The US dollar rose due to the strong US economic growth outlook, improving labor market, expectations of rising US inflation, and increasing US interest rates following Donald Trump’s victory. Read Winners and Losers in Energy after the US Election Results and US Election: How Will It Impact the Stock and Energy Markets? for more on the election.
The US dollar rose more than 20% in the last two years. The PowerShares DB US Dollar Bullish ETF (UUP) tracks the performance of the US dollar. It fell 0.2% to 26.2 on November 25, 2016.
US dollar and crude oil
The US dollar and crude oil are usually inversely related. A stronger US dollar makes crude oil more expensive for oil importers and vice versa. When the dollar rises, crude oil prices fall.
A recent survey from CME FedWatch suggested that ~100% of traders expect an interest rate hike from the Fed in December 2016. Improvement in the US consumer price index would also increase the likelihood of an interest rate hike. So, volatility in the US dollar could swing crude oil prices in the coming months.
Impact on stocks and ETFs
Moves in crude oil prices can impact oil and gas exploration and production companies’ earnings such as ExxonMobil (XOM), Chevron (CVX), Synergy Resources (SYRG), Carrizo Oil & Gas (CRZO), and Triangle Petroleum (TPLM).
The ups and downs in crude oil prices impact ETFs and ETNs such as the Direxion Daily Energy Bear 3x ETF (ERY), the Vanguard Energy ETF (VDE), the iShares Global Energy ETF (IXC), the Fidelity MSCI Energy ETF (FENY), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the United States 12 Month Oil ETF (USL), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), the Direxion Daily Energy Bear 3x (ERY), and the United States Brent Oil ETF (BNO).
What’s in this series?
In this series, we’ll focus on OPEC’s upcoming meeting, Cushing crude oil inventories, the US crude oil rig count, and some crude oil price forecasts.
Let’s start by looking at the energy calendar for this week.