US non-farm payrolls
Improving non-farm employment could mean more fuel consumption. This would be bullish for crude oil prices (USO) (BNO) and Natural gas prices. Crude oil is used to make transportation fuels like gasoline and diesel, while natural gas is used for power generation.
Impact of the US dollar on crude oil and natural gas
On the other hand, because the better-than-expected non-farm payroll number suggests that the US economic (VFINX) (VOO) recovery is intact, it warrants a rate hike. The US dollar (UUP) rose 0.1% on February 3.
A stronger dollar makes crude oil expensive for oil-importing countries, which pressures crude oil prices. The opposite is also true. Natural gas wasn’t exported in large quantities outside North America until recently, so it has historically not had a similar relationship with the US Dollar Index.
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 natural gas (GASL) (GASX) with the US Dollar Index (UUP). These ETFs include the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), and the Energy Select Sector SPDR ETF (XLE).
In the next part of this series, we’ll look at the relationship between crude oil, natural gas, and the S&P 500 Index.