Soft GDP Data: How It Impacts Energy Commodities




According to the first estimate by the Department of Commerce on April 28, 2017, advance estimates put US GDP growth at 0.70% for 1Q17. The expectation was for a 1.2% annual growth rate.

A soft GDP number could mean weak fuel consumption. That would be bearish for crude oil prices (USO) (BNO) and natural gas (UNG) prices. Crude oil is used to make transportation fuels such as 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 GDP data could also be an important driver for the US dollar (UUP) (USDU). GDP data represent the current state of the economy and affect the Fed’s interest rate decisions. Interest rates can affect the US dollar.

Between April 21 and April 28, 2017, the US dollar fell 0.90%. US crude oil June futures fell 0.60%, and natural gas June futures rose 2.6% during the same period. A weaker dollar makes internationally traded commodities cheaper for importing countries, and vice versa. When the dollar falls, it can support crude oil (USL) prices.

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.

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

Impact on energy ETFs

Energy ETFs can also be 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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