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US Dollar at a 13-Year High: Crude Oil Market’s Turning Point?

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Crude oil prices  

January 2017 WTI (West Texas Intermediate) crude oil futures contracts rose 0.8% and settled at $46.36 per barrel on November 18, 2016. December WTI crude oil futures contracts rose 0.6% and settled at $45.69 per barrel. December WTI crude oil futures contracts will expire on November 21, 2016. The increasing optimism about OPEC’s (Organization of the Petroleum Exporting Countries) plan to cap production supported crude oil prices on November 18, 2016. Short covering ahead of expiry also supported crude oil prices.

ETFs such as the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) rose 1.9% and 3.6%, respectively, on November 18, 2016.

 

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US Dollar Index and Trump  

The US Dollar Index rose 0.4% to 101.4 on November 18, 2016—the highest level in the last 13 years. It also rose 4% in the last two weeks. Donald Trump’s victory boosted the US dollar due to expectations of rising inflation and a rise in the US interest rate. 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 ~20% in the last two years. The PowerShares DB US Dollar Bullish ETF (UUP) tracks the performance of the US dollar. It rose 0.3% to 26.19 on November 18, 2016.

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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. So, when the dollar rises, crude oil prices fall.

A recent survey suggested that 94% 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.

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Impact on stocks and ETFs  

Volatility in crude oil prices can impact oil and gas exploration and production companies’ earnings such as ExxonMobil (XOM), Chevron (CVX), Northern Oil & Gas (NOG), ConocoPhillips (COP), and Triangle Petroleum (TPLM).

The rollercoaster ride in crude oil prices impacts ETFs and ETNs such as the Direxion Daily Energy Bear 3x ETF (ERY), 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 meeting, Cushing crude oil inventories, the US crude oil rig count, the U.S. Commodity Futures Trading Commission’s “Commitments of Traders” report, and some crude oil price forecasts.

Let’s start by looking at the energy calendar for this week.

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