How the US Dollar Index Is Affecting Oil


Dec. 4 2020, Updated 10:53 a.m. ET

US Dollar Index 

The US Dollar Index rose ~0.1% to ~94.15 yesterday, while August WTI oil futures rose 0.4% to $74.11 per barrel. The appreciating US Dollar Index may have limited oil prices’ upside.

Meanwhile, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell ~0.2% to $44.49. XOP’s weakest stocks yesterday—Ultra Petroleum (UPL), Gulfport Energy (GPOR), and Delek US Holdings (DK)—fell ~5.9%, ~3.9%, and ~3.7%, respectively. The stocks account for ~4.2% of XOP’s holdings.

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The US dollar’s highs and lows 

On February 15, the US Dollar Index fell to 88.6, its lowest level since December 2014. Meanwhile, active WTI oil futures stood at $61.34 per barrel. Conversely, on January 3, 2017, the US Dollar Index reached 103.2, its highest level in 14 years. WTI oil futures stood at $52.33 per barrel that day, illustrating the index’s and oil prices’ inverse relationship.

The Power Shares DB US Dollar Bullish ETF (UUP), which tracks the US Dollar Index, rose 0.04% to $24.84 yesterday. The US Dollar Index has appreciated 2.2% year-to-date, and WTI crude oil prices have risen ~22.65% despite the index’s strength, driven by several factors.


Yesterday, the US Dollar Index was near its 11-month high of ~95.39, which it hit on June 28. A trade war could make US imports more expensive, which could increase US inflation and interest rates and support the US Dollar Index. Trade fears could push capital toward the US dollar, raising it higher.

The Fed is expected to increase the US interest rate two more times this year, which could be bullish for the US Dollar Index. Expectations of a strong US Dollar Index could weigh on oil prices. However, if international economies improve or other major central banks raise interest rates, the US Dollar Index could lag behind peers. Next, we’ll discuss the crude oil supply outage in Libya.


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