Will the US Dollar Cap the Upside for Crude Oil Futures?

Crude oil futures 

February US crude oil (DWT) (USO) futures contracts rose 0.5% and were trading at $57.6 per barrel at 1:21 AM EST on December 18, 2017. January US crude oil futures contracts will expire on December 19, 2017. The Energy Select Sector SPDR ETF (XLE) rose 0.6% to 68.72, while the Vanguard Energy ETF (VDE) fell 0.1% to 93.81 on December 15, 2017. These ETFs are comprised of oil and gas producing companies.

Meanwhile, the E-Mini S&P 500 (SPY) futures contracts for March delivery rose 0.2% to 2,687.75 at 1:21 AM EST on December 18, 2017.

Will the US Dollar Cap the Upside for Crude Oil Futures?

US dollar  

The US Dollar Index rose 0.4% to 93.9 on December 15, 2017. The dollar (UUP) was near a four-week high. It limited the upside for crude oil (UCO) (DBO) prices on December 15, 2017. The US dollar rose due to renewed optimism about the US tax bill. 

The Fed raised the US interest rate 0.25% on December 13, 2017—the third hike in 2017. The US interest rate might increase three times in 2018. The Fed estimates 2.5% US GDP growth in 2018, which was estimated at 2.1% in September 2017. All of these bullish drivers would strengthen the US dollar (USDU).

US dollar’s highs and lows 

The US dollar hit 91.3 on September 8, 2017—the lowest level in nearly three years. The US dollar hit 103.8 on January 3, 2017, which was the highest level in more than a decade.

Impact

The US dollar and oil (UWT) prices are usually inversely related. The expectation of a strong US dollar could pressure oil prices. Lower oil (DWT) prices have a negative impact on energy companies (RYE) (IYE) like Northern Oil & Gas (NOG) and Viper Energy (VNOM).

Next, we’ll discuss Cushing inventories.