26 Dec

US Dollar Could Pressure Crude Oil Futures in 2018

WRITTEN BY Gordon Kristopher FEATURED IN Commodities

US dollar 

The US Dollar Index fell 0.6% to 93.3 on December 15–22, 2017. The US dollar and crude oil are usually inversely related. The weak dollar supported oil (UCO) (DBO) prices last week. Higher oil prices benefit energy producers and funds like the Vanguard Energy ETF (VDE).

The dollar is near a two-week low. It impacts the PowerShares DB US Dollar Bullish ETF (UUP), which tracks the US dollar’s performance. The US dollar fell last week because it already priced in the new US tax bill. The tax bill aims to reduce US corporate tax from ~35% to ~21%.

US Dollar Could Pressure Crude Oil Futures in 2018

US dollar’s lows and highs 

The US dollar (UUP) tested 91.3 on September 8, 2017—the lowest level in almost 36 months. On the other hand, the US dollar hit 103.8 on January 3, 2017—the highest level in almost 15 years.

US dollar and crude oil

Crude oil is a dollar-denominated commodity. A strong dollar makes crude oil expensive for crude oil importers. So, crude oil prices fell. Lower oil (UWT) prices have a bearish impact on energy companies (IXC) (IYE) like Laredo Petroleum (LPI), Chevron (CVX), ExxonMobil (XOM), and Baytex Energy (BTE).

In contrast, a weak dollar makes crude oil economical for oil importers. So, crude oil prices (USO) (UCO) rise.

Impact 

The Fed might increase the US interest rate three times in 2018. It also estimates that US GDP will grow 2.5% in 2018. All of these factors would strengthen the US dollar. The expectation of a strong US dollar could pressure oil (USO) prices in 2018.

Next, we’ll discuss Cushing oil inventories.

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