Oil and the US dollar once again joined hands together Last year, the scene of oil price collapse will repeat itself?

Release time：May 14, 2019 From：admin

The magical correlation between oil and the dollar

Historically, crude oil prices have been inversely related to the dollar's movements; a strong dollar usually means that oil prices are weak, and vice versa. The interpretation of this relationship is based on two well-known premises:

1. Oil prices are denominated in US dollars worldwide. When the dollar is strong, you can buy a barrel of oil in less dollars, and when the dollar is weak, the dollar-denominated oil is even higher.

2. The United States has always been a net importer of oil. Rising oil prices tend to lead to an increase in the US trade deficit, so more dollars will flow to the United States.

The former is still the case, but the latter is changing. Due to the improvement of the flat well fracturing technology, the US shale revolution has greatly increased the US oil production. In 2014, 90% of the US's energy consumption was already self-sufficient. According to the International Energy Agency's (IEA) forecast in March this year, the United States will become a net exporter of crude oil and refined oil by 2021.

As US oil exports increase and imports decline, this means that higher oil prices will not increase the US trade deficit, but will also help reduce it. Therefore, in fact, the strong reverse relationship between oil prices and the US dollar has become increasingly unstable.

In the eight years of 2010-2017, the six-month rolling correlation between the US dollar index and oil prices was mostly negative, but this situation has begun to change. Today, the oil market remains firm as the dollar continues to rebound. For most of this year, oil prices have risen along with the dollar.

Unlike the US dollar, the MSCI Emerging Markets Index has always maintained a good correlation with crude oil. A large part of this index is an economy that benefits from high oil prices, and another is an economy that consumes a lot of crude oil. When the demand for crude oil is high, the stock markets of both the consuming and producing countries of crude oil perform very well.

Another strange thing is that oil prices have not fallen from the 2008 highs like the PHLX Oil Service Index. On the other hand, oil prices have begun to break out of the lows of early 2016, but the OSX index is still sluggish.

The index covers oil service companies that are sensitive to oil prices and drilling budget costs. The oil price of $64 is usually more likely to be above $150, but the index is currently around $99. This unequal situation will either wait for the OSX index to rise to change, or let the crude oil trend weaken to break, but oil prices have not yet reflected a weak trend.

Bullish sentiment is still rising, Trump speaks to lower oil prices

On the contrary, oil prices are in the longest bull market in 13 years, and the market's bullish sentiment remains undiminished. According to data released by the US Commodity Futures Trading Commission (CFTC) on Friday, hedge funds have increased their long positions in US crude oil for nine consecutive weeks, the longest period of continued bullishness since 2006.

During the week ending Tuesday (April 23), WTI crude oil net long position rose 3.6% to 314,387 contracts and options contracts, with long positions rising slightly by 1.7% and short positions falling by 18%. As investors believe that the global threat to crude oil supply is increasing exponentially, the position of bet on rising crude oil prices is almost 14 times lower than the drop in oil prices. But analysts at Price Futures Group Inc. say the speculative sentiment of speculative bets suggests that a correction may be made anyway.

“The market sentiment is so high now. Hedge funds have a lot of buying and speculative interest is high, but we may have to press the pause button.”

On Friday, US President Trump told reporters that he had called OPEC and asked the organization to take positive action to stop the oil price from rising. This remark suppressed the price of oil. The intraday decline of international oil prices once exceeded 4%. WTI crude oil even recorded the first weekly decline in two months. Is oil price going to repeat the history of last year's high diving? The answer from analyst Clif Droke is no.

In fact, the phenomenon of the common rise in the dollar and oil prices has also occurred in the period from May to July last year. At that time, sanctions on Iranian oil caused oil prices to soar, but the subsequent results were not as serious as investors worried, coupled with the accumulation of crude oil inventories, crude oil prices fell from $77 to $42/barrel in a quarter. . The result was a strong dollar victory and the oil price eventually collapsed.

Today, Iran’s crude oil export restrictions have once again caused market concerns, and oil prices are now recovering to around $63. Investors believe that the crude oil market is all good, but people are once again facing a strong dollar. However, the simultaneous rise in oil prices and the US dollar index is somewhat different from last year's.

The risk-averse sentiment declines the dollar soon will not work?

When oil and the US dollar rose last year, the price of bulk commodities did not confirm the strength of oil prices. In fact, under the issue of Iran’s sanctions and the global economic slowdown, not only is there a problem with the correlation between the US dollar and crude oil, but even the correlation between oil and various commodity indexes is problematic, but energy It is the most important component of the commodity index.

As a commodity benchmark index, the Thomson Reuters Core Commodity CRB Index fell last summer, indicating that crude oil prices will fall later that year. In contrast, the current CRB index is rising along with crude oil prices, as other inflation-sensitive commodities, including copper, platinum and palladium, have recently performed relatively strong.

Droke believes that the double rebound in the crude oil market and the US dollar is only short-term. As oil prices will not rise for a long time in the case of a stronger US dollar, the oil price or the US dollar index must fall sharply. More importantly, there is enough evidence that the dollar will eventually weaken.

Droke pointed out that the recent strength of the dollar can be largely attributed to the market's safe-haven demand for the dollar in late 2018 and early 2019. Global investors are worried about the prospects for trade and the possibility of a recession in the Eurozone, but in recent weeks, the stimulus plan seems to have played a role, risk aversion has declined, and funds have once again poured into emerging markets and US stocks, away from US debt and A safe haven such as the US dollar.

More and more foreign exchange analysts expect the dollar to peak, and Macquarie's financial market economist team even believes that the dollar may have crossed the highest point. They pointed out that as global trade tensions eased and prospects for manufacturing activity in the euro zone improved, this is a factor that the dollar will weaken. If these economists are right, then the sharp fall in the US dollar index may soon appear, will the long days of crude oil longs be far behind?