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US Dollar Could Benefit Crude Oil Futures

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Mar. 14 2018, Published 9:31 a.m. ET

US dollar  

The US Dollar Index depreciated 0.3% to 89.6 on March 13, 2018—near a one-week low. Similarly, US crude oil prices decreased 1.1% on March 13, 2018. A weak dollar could have limited the downside for prices during the same period.

The ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell 1.9% to 24 on March 13, 2018. UCO aims to provide twice the daily return of an index of WTI crude futures contracts. The PowerShares DB Oil Fund (DBO) fell 0.3% to 10.6 on March 13, 2018. DBO tracks the performance of the DBIQ Optimum Yield Crude Oil Index Excess Return.

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US dollar’s highs and lows 

The US dollar reached 88.25 on February 16, 2018—the lowest level since December 2014. US crude oil prices reached $61.68 per barrel on February 16, 2018.

The US dollar reached 103.8 on January 3, 2017—the highest level in the last 14 years. US crude oil prices reached $52.33 per barrel on January 3, 2017.

The Power Shares DB US Dollar Bullish ETF (UUP) follows the US dollar’s performance. UUP fell 0.3% to 23.4 on March 13, 2018, while the US dollar fell 0.3% on the same day.

Impact  

The US Dollar Index declined ~9.8% in 2017, while US crude oil prices increased ~12.4% during the same period. The weak dollar partially supported oil prices.

The US Dollar Index averaged 96.6 in 2017. A Reuters poll estimates that the US Dollar Index could end 2018 at ~88.7.

The Fed might increase US interest rates four 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. The expectation of a weak dollar is bullish for crude oil prices in 2018.

Next, we’ll discuss Libya’s crude oil production.

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