The Value of the Dollar

By: Daniel Guttman / January 11, 2016

Volatility continues to be the word on everyone’s minds, and the term used in seemingly every petroleum news posting. Between the instability of China’s economy, turmoil between Iran and Saudi Arabia, job reports in the U.S. and Canada, and U.S. crude stockpiles, which are 100 million barrels above the five-year average, the market’s direction is more-than-ever “up in the air.” Currently, crude is trading down $1.55 at $31.61, lower than the 2004 record of $32.40. Heat is also down $0.0336 and RBOB is down $0.0159.

The relationship between commodities and the value of the dollar is quite interesting, and also quite easy to understand. Commodities, such as oil, follow an inverse relationship with the value of the dollar: when one goes up the other goes down, and vice versa. This is largely due to two main factors. First, commodities are priced in dollars. Therefore, when the dollar goes down, it will take more dollars to buy that commodity. The other factor is that commodities are traded globally, so the value of the dollar shifts foreign buyers’ potential purchasing power. For example, if the value of the dollar decreases, foreign buyers will now have greater buying potential, which could in turn increase demand. What we know about basic economics is that an increase in demand typically triggers an increase in price.

Why am I explaining all of this?

Well, we are currently undergoing a rapid appreciation of the U.S. dollar, and key analysts believe that if currency gains 5 percent, oil may fall between 10 to 25 percent. According to Morgan Stanley analysts,  “A global glut may have pushed oil prices under $60 a barrel, but the difference between $35 and $55 is primarily the U.S. dollar."     



Categories: Daily Market Update

Daniel Guttman

Written by

Daniel Guttman

With a background in wholesale and commercial sales as well as pipeline scheduling, Daniel is currently the Manager, Business Development in the Card Access Fuels department. He is tasked to find new and innovative solutions to increase sales opportunities for the sales team while managing and evaluating internal department processes. He assists with day to day personnel management, customer data analysis, as well as the daily Pacific Pride inventory and pricing direction.

Guttman Energy Daily Market Update Disclaimer – The information contained in this market update is derived from sources believed to be reliable; however this update could include technical inaccuracies or typographical errors and Guttman Energy does not guarantee the accuracy, completeness or reliability of this update. FURTHERMORE, THIS UPDATE IS PROVIDED "AS IS," WHERE IS, WITH ALL FAULTS AND WITHOUT ANY WARRANTY OR CONDITION OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. GUTTMAN ENERGY ALSO SPECIFICALLY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES. YOU USE THIS UPDATE AT YOUR SOLE RISK. This update and any view or comment expressed herein are provided for informational purposes only and should not be interpreted in any way as recommendation or inducement to buy or sell products, commodity futures or options contracts.


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