How Does the US Dollar Drive Crude Oil Prices?



Crude oil prices  

March WTI (West Texas Intermediate) crude oil (XLE) (USL) (ERY) (RYE) futures contracts fell 1.1% and closed at $53.17 per barrel on January 27, 2017. For more updates on crude oil prices, read Part 3 of this series.

Crude oil prices fell due to the following:

  • The International Energy Agency estimates that total US oil production will rise by 320,000 bpd (barrels per day) to 12.8 MMbpd (million barrels per day) in 2017—compared to 2016.
  • US crude oil rigs rose—read Part 5 of this series to learn more.
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US Dollar Index, the Fed, and Trump   

The US Dollar Index rose 0.2% to 100.5 on January 27, 2017. It also pressured crude oil prices. However, the US dollar is trading near two-month lows. Markets’ uncertainty about Donald Trump’s possible new trade policy pressured the US dollar.

The US dollar hit a high of 103.8 on January 3—the highest level in 14 years. The US dollar (UUP) had been appreciating due to the following factors:

  • improving US manufacturing activity
  • improving labor market
  • expectations of rising US inflation
  • expectations of fiscal stimulus from Donald Trump’s administration
  • the Fed’s interest rate hike by 25 basis points on December 14, 2016, to 0.50%–0.75%

US dollar and crude oil   

The US dollar and crude oil (USO) (UCO) (PXI) (USL) are usually inversely related. A weaker US dollar makes crude oil more economical for oil importers. When the dollar falls, crude oil prices rise.

The expectation of higher interest rates in 2017 could push the dollar higher. The strong US dollar is expected to be one of the key downside catalysts for crude oil prices in 2017. Lower crude oil prices have a negative impact on oil and gas exploration and production companies’ earnings such as Contango Oil & Gas (MCF), Stone Energy (SGY), and Cobalt International Energy (CIE).

What’s in this series? 

In this series, we’ll look at US crude oil (XOP) (XES) (IEZ) (ERX) highs and lows in the last 12 months, Cushing crude oil inventories, the US crude oil rig count, major oil producers’ production cut plans, and some crude oil price forecasts.

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


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