Since 2000 the price of oil and the US dollar have been consistently inversely correlated. When is oil rising, the dollar is falling and vice versa.
Prior to the creation of the Euro the correlation was less consistent.
Here is another look at the correlation.
I believe this change is due to what I refer to as the Financialization of Oil. A link to the paper I wrote on this topic can be found here.
However, since Q1/2016 the correlation has become positive.
I believe this could continue for two reasons.
- Loss of faith in the Euro as an international currency.
- Oil has become a US Economy growth story.
I think this will cause US shale producers to come back to market slower than anticipated. I believe the first boost to US oil production will come from DUCs (drilled but uncompleted wells) and then from “sweet spot” locations. However, if the realized price for US producers is restricted by the USD increasing with the price, the marginal companies and marginal locations will not be exploited until after $60/barrel is breached to the upside, especially if the dollar rises faster than oil.