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US Dollar Could Support Crude Oil Futures

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Feb. 13 2018, Published 9:33 a.m. ET

Crude oil futures  

March US crude oil futures rose 0.51% to $59.59 per barrel at 1:00 AM EST on February 13, 2018. Prices rose due to short covering and a weak dollar. The US Dollar Index depreciated 0.3% to 89.94 in early morning trade on February 13, 2018—near a three-year low.

Meanwhile, oil prices were near a two-month low, which has a negative impact on the Energy Select Sector SPDR ETF (XLE) and the Vanguard Energy ETF (VDE). These ETFs are also near a two-month low. XLE and VDE rose 1.6% and 1.8%, respectively, on February 12, 2018. US crude oil futures rose 0.15% on the same day. These ETFs have exposure to US oil and gas companies.

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US dollar  

The US Dollar Index appreciated 1.1% to 90.2 on February 2–9, 2018. US crude oil prices declined 9.5% last week—the largest weekly decline since January 2016. The recovering dollar partly pressured oil prices last week.

WTI crude oil futures contracts rose 0.15% to $59.29 per barrel on February 12, 2018. The PowerShares DB Oil Fund (DBO) rose 0.4% to 10.11 on February 12, 2018, while the VelocityShares 3x Long Crude Oil ETN (UWT) rose 0.5% to 23.2 on the same day. These ETFs follow US crude oil futures. They declined 8.4% and 25.3%, respectively, last week.

US dollar’s lows and highs  

The US dollar hit 103.8 on January 3, 2017—the highest level in 14 years. The US Dollar Index tested 88.55 on February 1, 2018—the lowest level since December 2014.

The Power Shares DB US Dollar Bullish ETF (UUP) fell 0.38% on February 12, 2018, while WTI rose 0.15% on the same day. UUP tracks the US dollar’s performance.

Impact  

The US Dollar Index declined ~9.8% in 2017, while US crude oil prices rose ~12.4% in 2017. The weak dollar partly supported oil prices.

The Fed is expected to increase the US interest rate three times in 2018, which is bullish for the US dollar. However, the improving economy outside the US could see the US dollar lag compared to its peers. Major central banks could increase interest rates in 2018. Moves in the US dollar could impact crude oil prices.

Next, we’ll discuss the US and non-OPEC crude oil production.

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