US Dollar Index
The US Dollar Index rose ~0.3% to 95.08 on June 19, while August WTI oil futures contracts fell 1.2% to $64.90 per barrel on the same day. The strong US Dollar Index pressured oil prices on June 19.
However, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) increased ~0.9% on June 19. XOP seeks to follow the performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
Matador Resources (MTDR), Centennial Resource Development (CDEV), and Jagged Peak Energy (JAG) rose ~5.3%, ~5%, and ~4.3%, respectively, on June 19. These stocks were the biggest percentage gainers in XOP’s portfolio on June 19. These stocks account for ~4.5% of XOP’s holdings.
US dollar’s highs and lows
The US Dollar Index dropped to 88.59 on February 15—the lowest level since December 2014. WTI crude oil futures reached $61.34 per barrel on February 15.
The US Dollar Index rose to 103.2 on January 3, 2017—the highest level in 14 years. WTI oil futures reached $52.33 per barrel January 3, 2017, which shows the broadly inverse impact that the US dollar has on crude oil prices.
The Power Shares DB US Dollar Bullish ETF (UUP) seeks to track the performance of the US Dollar Index. UUP rose 0.28% to $25.04 on June 19, while the US Dollar Index rose ~0.3% on the same day.
The US dollar has risen 3.5% year-to-date. WTI crude oil prices have risen ~7.8% during the same period despite the strong US Dollar Index. Oil prices rose due to the current self-imposed supply cuts by OPEC and non-OPEC oil producing countries, expectations of new sanctions on Iran and Venezuela, strong demand, and supply outages.
The US Dollar Index was at the highest level in 11 months on June 19. Escalating trade tensions could make US imports more expensive, which could increase inflation and interest rates and support the US Dollar Index.
The Fed increased the US interest rates 0.25% on June 13. The Fed is expected to increase the US interest rate two more times in 2018, which could be bullish for the US Dollar Index. Expectations of a strong US Dollar Index could pressure oil prices.
However, the improving economy outside the US could see the US Dollar Index lag compared to its peers. Other major central banks could increase interest rates in 2018.
Next, we’ll discuss the crude oil supply outage in Libya.