Oil and currencies are inherently related for all sorts of reasons, from balance of trade (BOT) to market psychology just to name a few.
When something happens to oil, currencies move either with or opposite of it — and vice-versa.
As you know, the most powerful currency on earth is the US dollar. It’s the world’s reserve currency.
When the US dollar increases in value, it takes less of it to buy the same amount of oil.
At the same time, other currencies lose value in comparison to the reserve currency. It takes more of those currencies to buy the US dollar.
Thus, it also takes more of those currencies to buy the same amount of oil — or in other words, higher prices.
Higher prices lead to lower demand — which is why when the dollar goes up, oil goes down.
Well, usually.
The dollar’s actually been increasing since the beginning of the year alongside oil prices.
The only reason oil prices weren’t dropping was that people didn’t believe in the US dollar’s strength at that point.
They didn’t see any evidence backing up the rising dollar value.
Recently, however, we saw an end to this trend.
Reuters recently reported that a new spike in U.S. Treasury yields sparked a risk-off move (in other words, investors reducing their exposure to risk) in global currency markets on Friday — this led to the greenback reversing its fall from earlier in the week, causing riskier currencies to take hits.
This increase in US Treasury yields gave the support crude oil traders needed to finally believe that the US dollar was strengthening — thus, they began to trim down their positions (which, of course, drove prices down further).
For example, West Texas Intermediate crude has been trending downward with limited volume since Friday. Many other futures have as well.
That said, there are some variables underpinning oil prices, too.
For one, the OPEC production cuts are still in effect (with slight increases from Russia and Kazakhstan only), restricting supply in an attempt to support prices.
Additionally, people have an optimistic outlook for the economy as we progress through the pandemic, vaccines continue to roll out, and stimulus checks are sent out to US citizens.
Whatever happens, though, there’s money to be made.
If you get inside Big Energy Profits today, I’ll show you how.