US Dollar Weighs on Oil

Oil markets are trending flat to lower this morning following Friday’s rally. Friday saw some upward price movement, yet the gains were not enough to keep crude from ending the week slightly lower overall. Both crude and gasoline ended the week in the red, however diesel was able to pull into the black supported by near 5-year low inventory levels. This morning, crude prices are trading at $67.40, a loss of 23 cents from Friday’s close.

Fuel prices are trading in opposite directions this morning. Diesel prices are trading at $2.1457, up 60 points from Friday’s close. Gasoline prices have lost over a penny and are trading at $2.0320.

The US dollar has been weighing heavily on oil prices recently. All global oil is priced in dollars, so as the American currency becomes more expensive, it’s harder for other countries to invest in oil (and all other commodities prices in dollars). Oil prices having pushed against multi-year highs this summer, and this combination of high prices and expensive dollars are putting a crushing weight on consuming countries. Typically a strong dollar causes oil prices to fall, but when oil market fundamental dynamics overwhelm that and keep oil prices high, consumers in other countries suffer. Although the global economy is strong and expected to continue growing this year, high oil prices (made even more expensive by a strong dollar) could become a headwind that other countries must overcome.

OPEC released their official monthly oil review, which showed an increase in Non-OPEC production for the remainder of 2018 and even more in 2019. While the fundamentals for 2019 still look balanced, excess production could keep a lid on crude prices. At the same time though, the official data confirmed that Saudi Arabia cut their production in July after promising to increase production back in June. With even the official OPEC reports showing a mixture of bullish and bearish news, markets are still unsure of which direction prices will ultimately follow.