US Dollar and Oversupply Concerns Impact Crude Oil Prices


Nov. 20 2020, Updated 3:49 p.m. ET

Crude oil prices 

February WTI (West Texas Intermediate) crude oil (PXI) (RYE) (XOP) (XES) (IEZ) (ERX) (USL) (ERY) futures contracts fell 3.8% and settled at $51.96 per barrel on January 9, 2017. Brent crude oil futures contracts fell 3.8% and settled at $54.94 per barrel. For more updates on crude oil prices, read Part 3 of this series.

Crude oil (USO) (UCO) (XLE) prices fell due to oversupply concerns. The factors triggering them are mentioned below:

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  • There were record crude oil exports from Iraq in December 2016, according to the Oil Ministry of Iraq. Iraq exported 3.5 MMbpd (million barrels per day) of crude oil in December 2016 from oil ports in Basra—the highest in the last four years.
  • There’s an expectation of a rise in crude oil production from the US.
  • There’s an expectation of a rise in crude oil production from Libya, Iran, and Nigeria.
  • There are doubts about whether major oil producers will comply with planned production cuts.

US Dollar Index, the Fed, and Trump 

The US Dollar Index fell 0.3% to 101.9 on January 9, 2017. However, it hit a high of 103.8 on January 3—the highest level in 14 years. The US dollar (UUP) has been appreciating due to the following factors:

  • a better-than-expected rise in US manufacturing activity in December 2016
  • strong US economic growth outlook
  • improving labor market
  • expectations of rising US inflation
  • expectations of fiscal stimulus from Donald Trump’s administration—read Winners and Losers in Energy after the US Election Results and US Election: How Will It Impact the Stock and Energy Markets?
  • the Fed’s interest rate hike by 25 basis points on December 14, 2016, to 0.50%–0.75%
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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. When the dollar rises, crude oil prices fall. Moves in crude oil prices can impact oil and gas exploration and production companies’ earnings such as QEP Resources (QEP), Whiting Petroleum (WLL), and Goodrich Petroleum (GDP).

The expectation of an interest rate hike in 2017 could push the dollar higher. Volatility in the US dollar could impact crude oil prices in 2017. The strong US dollar is expected to be one of the key downside catalysts for crude oil prices in 2017.

What’s in this series?  

In this series, we’ll look at US crude oil highs and lows in the last 12 months, Cushing crude oil inventories, the US crude oil rig count, and some crude oil price forecasts.

Let’s start with the energy calendar for this week.


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