Stocks and Commodities Magazine

A Commodity Broker / Analyst opinion on the 2014 Crude Oil Collapse and the effect on the US Dollar

Some are blaming the 2014 crude oil collapse on the strength of the US dollar; what are your thoughts?

The hideous decline in crude oil during the latter half of 2014 was the result of several factors at work; however, I do believe the biggest role player was the currency market. At the time of this writing, the correlation between crude oil and the greenback was hovering near 91%. In other words, roughly 9 out of 10 occasions the price of crude oil had moved in the opposite direction as the dollar (during a 180 day data set). Thus, any significant re-pricing in the dollar vs. other major currencies has a profound impact on crude oil.

A quick look at the chart tells a profound story of the relationship between crude oil and the U.S. dollar. In July of 2014, the greenback found footing and forged a sharp rally; crude oil simultaneously peaked and fell precipitously. It is difficult to argue that each market is moving independently of the other.

 

More on the 2014 crude oil meltdown and the effect on commodity markets in the March 2014 issue of Stocks & Commodity Magazine

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