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How US Consumer Sentiment Affects Energy Commodities

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US consumer sentiment

The US consumer sentiment index was at 96.9 in March’s final reading, according to the University of Michigan survey released on March 31, 2017. The expected reading was 97.6. The lower-than-expected reading could indicate that the market was overestimating consumer optimism.

Consumer sentiment data could impact crude oil and natural gas prices. Weak consumer sentiment could be bearish 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.

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Impact of the US dollar on crude oil and natural gas

US consumer sentiment data could also be an important driver for the US dollar (UUP) (USDU). The index represents consumer confidence in the current state of the economy. Thus, this data could drive the Fed’s interest rate decisions. The Fed’s benchmark interest rate can affect the US dollar.

Last week, the US dollar rose 0.7%. US crude oil May futures rose 5.5%, while natural gas May futures rose 1.2% over the same period. A stronger dollar makes crude oil expensive for oil-importing countries, which pressures crude oil (USL) prices. The opposite is also true. Natural gas wasn’t exported in large quantities outside North America until recently, so it hasn’t historically had a similar relationship with the US Dollar Index.

However, both crude oil and natural gas moved independently of the US dollar last week, as the above graph shows.

Impact on energy ETFs

Energy ETFs are also impacted by economic data and the relationship that crude oil (UCO) (USO) (OIIL) (BNO) and natural gas (GASL) (GASX) prices have with the US dollar. These ETFs include the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), the ProShares UltraShort Bloomberg Crude Oil (SCO), the iShares US Oil Equipment & Services (IEZ), and the Energy Select Sector SPDR ETF (XLE).

In the next part of this series, we’ll look at the relationship that crude oil and natural gas have with the S&P 500 Index.

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