The Correlation Between Crude Oil and the U.S. Dollar

click to enlarge

The picture above shows a one year chart for United States Oil fund (USO), PowerShares Bullish US dollar index (UUP) and SPDR Trust (SPY). You can see there is an inverse correlation between the value of the US dollar and crude oil prices. The slide from record crude prices of $140 triggered the US dollar rebound. In the past few days, the Euro and other currencies are regaining ground against the US dollar, but crude oil is still heading down.

Another indication of a possible turnaround are equities. Global markets found their short term bottom on November, and crude oil prices usually follow stock markets' peak or bottom with some delays.

Comments

[skwestorange:]

It is a strech to say there is any correlation between SPY and USO based on this chart. The same statement can also be made about UUP and USO except in some brief periods.

2008 Dec 26 07:20 AM

[De Graaf:]

I agree with Skwestorange,

It would be more appropriate to consider the correlation between oil and gold, as gold is the only asset that holds up with the relatively strong dollar momentarily.

The fundamentals for the dollar are changed forever. There is a divide between investors. In one part because confidence in dollar finance is severely disrupted. And the other part, by investors who were short dollar/long commodities, who are forced to buy dollars to cover the carry trade.

Gold and oil also have a disturburbed correlation, although gold performs better than any other asset class. Its ratio stood at 15 but is now around 25. That's a very strong RSI figure and probably the only stronghold next to the bond market.

2008 Dec 26 08:14 AM

[sportsguy:]

This qualifies as an article?

2008 Dec 26 10:22 PM

[Gedankonomist:]

I agree that one day we will have $200/bbl oil.

I disagree that it will be because oil is running out. It will rather be because paper is NOT running out.


On Dec 26 08:53 AM Simmons wrote:

> "We're going to see $200 oil at some point, it may be by 2013. It's
> a sad fact but the world is running out of known oil," Jim Rogers,
>
>
> jimrogers-investments....
>

2008 Dec 27 12:30 AM

[bsharvy:]

Doubt this: "The slide from record crude prices of $140 triggered the US dollar rebound."

More reasonable: The strengthening of the dollar contributed some unknown amount to the slide in oil prices.

2008 Dec 27 01:59 AM

[CLH:]

Yes you are right. The dollar and oil are inversely correlated. However, the dollar is in a short term correction and the commodities are having a dead cat bounce. Commodities will continue down for some time after their huge bubble.

2008 Dec 27 07:25 AM

[plumber2:]

CLH is most probably correct. And De Graff is also correct the fundamentals of the dollar are changed. ( However,I would not say forever).
What happens to the dollar long term depends on our response to this crisis. If while they have the financial institutions jacked up with short term liquidity they put a firm foundation under it by creating a system that encourages saving and investment instead of gross consumption for it's own sake thing could return to normalcy. This also depends on us as a country creating a energyl supply that is both abundant and affordable. Without affordable you can not grow any country's economy
long term. This means that we probably need many forms of energy for our supply not any one particular alternative fuel. This is especially true in the short term.

2008 Dec 29 09:27 AM