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US Consumer Sentiment Up: What Does It Indicate for Oil Prices?

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Dec. 12 2016, Updated 9:37 a.m. ET

US consumer sentiment

The US (SPY) (VOO) consumer sentiment index was at 98 in December’s preliminary reading, according to the University of Michigan survey released on December 9, 2016. However, the expectation was for a 94.3 reading. The higher-than-expected reading indicates consumers’ positive sentiment, which could mean higher demand for crude-oil-derived fuels like gasoline and distillate. Higher demand is positive for crude oil prices.

US consumer sentiment is one of the most important economic data points that shows the state of the economy. Improved consumer sentiment could impact the timing of the next rate hike. It could also impact the US Dollar Index (UUP), and thus, crude oil prices.

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US Dollar Index and crude oil

In the past five trading sessions, the correlation between crude oil prices and the US dollar was 49%. The correlation was positive and didn’t indicate the dollar’s adverse impact on crude oil prices.

However, a weaker dollar makes crude oil cheaper for oil-importing countries, which boosts crude oil prices. The opposite is also true. Last week’s high positive correlation was coincidental on account of the short period of analysis.

The evolution of trends in US consumer sentiment data is an important factor that can directly or indirectly impact crude oil prices in more than one way.

Impact on energy ETFs

Energy ETFs are also impacted by economic data and the relationship between crude oil prices (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) (UCO) and the US Dollar Index. These ETFs include the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), the United States Brent Oil ETF (BNO), the Energy Select Sector SPDR ETF (XLE), and the United States Oil ETF (USO).

In the next article, we’ll discuss the impact of crude oil prices on the S&P 500 Index.

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