US Dollar Could Pressure Crude Oil Prices This Week



Crude oil prices 

WTI (West Texas Intermediate) crude oil (IEZ) (FENY) (BNO) futures contracts for May delivery fell 0.8% and were trading at $48.4 per barrel in electronic trade at 2:55 AM EST on March 20, 2017.

Prices are trading near a four-month low. However, broader markets such as the S&P 500 (SPY) (SPX-INDEX), the Dow Jones Industrial Average, and the NASDAQ Composite Index are near all-time highs. Bullish momentum in the US stock market could support oil demand and oil prices. For more on crude oil prices, read Part 1 and Part 4 of this series.

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US Dollar Index, the Fed, and President Trump 

The US Dollar Index fell 0.1% to 100.11 on March 17, 2017. The dollar hit a high of 103.8 on January 3, 2017—the highest level in 14 years. The dollar (UUP) had been rising due to the following factors:

  • the Fed’s interest rate hike by 25 basis points on March 15, 2017, to 0.75%–1%
  • better-than-expected US jobs report in February 2017
  • expectations of fiscal stimulus and possible tax reforms under President Trump
  • strong US economic growth outlook
  • improving US manufacturing activity
  • expectations of rising US inflation
  • 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 fell almost 4% from its peak level in January 2017. It also fell for the fourth consecutive session as of March 20, 2017.

The US dollar and crude oil (BNO) (XES) are usually inversely related. A fall in the US dollar makes crude oil more economical for oil importers. When the dollar falls, crude oil prices rise.

Volatility in crude oil prices impacts oil and gas producers’ earnings such as ConocoPhillips (COP), Continental Resources (CLR), Warren Resources (WRES), and QEP Resources (QEP).

Goldman Sachs (GS) predicts an interest rate hike in March 2017, June 2017, and September 2017. The expectation of multiple interest rate hikes 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.

In the next part, we’ll discuss the energy calendar for this week.


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