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US Dollar Is near a 5-Month Low: Can It Support Crude Oil Bulls?

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Crude oil prices 

June WTI (West Texas Intermediate) crude oil (VDE) (XOP) (UCO) futures contracts fell 0.5% and were trading at $49.1 per barrel in electronic trade at 4:50 AM EST on May 1, 2017.

Prices are near a one-month low. Broader markets such as the S&P 500 (SPY) (SPX-INDEX), NASDAQ, and Dow Jones 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 1% to 98.9 for the week ending April 28, 2017. However, the dollar hit a high of 103.8 on January 3, 2017—the highest level in 14 years. The dollar (UUP) rose due to the following factors:

  • the Fed’s interest rate hike by 25 basis points on March 15, 2017, to 0.75%–1%
  • improving US jobs market
  • expectations of fiscal stimulus and possible tax reforms under President Trump
  • 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 ~4.7% from its high on January 2017. The dollar is near a five-month low. The dollar is down due to less-than-expected GDP growth in 1Q17. The US Bureau of Economic Analysis said that the GDP grew 0.7% in 1Q17—compared to analysts’ expectations of 1.2%. In contrast, the GDP grew at 2.1% in 4Q16.

The US dollar and crude oil (IXC) (IYE) (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.

Changes in crude oil prices impact oil and gas producers’ earnings such as Hess (HES), Noble Energy (NBL), Northern Oil & Gas (NOG), and Triangle Petroleum (TPLM).

A market survey predicts an interest rate hike in 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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