According to the economist, the relation between oil prices and the United States’ dollar is negative. Besides this relation being negative there are some exceptions to this relation that are very important. These exceptions in relation could rise if there is to be a crisis of finance and money. It could also arise when the value of the US dollar is very high. Also check out, economic growth of UAE expected to grow!
If we compare the price and demand of oil from now with that of 2008, there is a lower demand in the international demand for oil collectively. Back in 2008 there was an international economic crisis and nowadays the financial performance is poor and the policies of interest rates are loose so that there could be a growth in the economy. So, with this, the United States dollar and oil, the value of both is going to face a downfall. These would be going down the hill because the market would insist on the affordable prices. Thus in the middle, there would be a fall in demand.
Last year as the dollar exchange rate was increased still the prices for oil were kept in control. This happened because of the fact that the local market was unable to afford it at the current rates. Supply fears and some other hindrances also played their role in doing so.
If we see, either there are any consequences of change in the rate of dollar exchange on rising or fall of oil prices or not. Then we see that it clearly effects. So when we have to evaluate the impact of it on oil prices then we have to stay careful and pay attention to the condition and situation. These conditions and situations are related to dollar strength. Investor’s confidence is crushed or lowered when there is a chance of fear of a global slowing.
As previously the stock exchange rate was disturbed because of this international slowdown and its fear of happening. So as a result of it investors also cut down their expectations on what they were expecting the oil prices level would be. Because of this cut-down, pressure on oil prices was increased.
The economic position of China and its relation with the United States clearly affect the oil prices and in parallel to that dollar strength too. Federal Reserve policy of the United States was also affected by global market fears. So, as a result, it caused a pause in the increase in interest rates. And so, the value of the US dollar has significantly driven down.
However, after all this, there have been some positive developments between China and the United States. These positive developments and trade talks have been successful in restoring markets’ confidence. But, because of the economy of China and its ripple effect intermittently crushes that confidence but there still is confidence and investors are willing. The talk of the town is where the economic development of China will take those recently developed relations.
The narrative of the president of the United States of America is lowering the oil prices globally and limit the supply. These conditions will encourage and enhance the economy of the United States. The economy will rise as an effect of stimuli wear off with time. The shale oil of US’s has enough capacity of production that it supports president Trump’s narrative. So if the global growth of oil would be steady they will enhance the demand for it.
Another take on this matter is that OPEC members would refrain from oil supply or the supply would be tightened. So, this would not cause any loss plus it will maintain the cash flow that was depending on oil. The countries whose GDP is from sources other than oil, and a fair share of it, can bear the situation. But for the countries that are moving towards a diverse economy need high oil prices. Thing like these makes the situation difficult. Is Federal Reserve continues to lose the oil US dollar would be more devalued? Then prices of oil based on dollar rate would be more affordable.
On the other hand, if talks and developments between China and the United States give us some positive outcome then there would be a rise in oil demand, for the rest of the year.
The GDP growth of China was safe until disagreement on price brought the two biggest countries to negotiate. Either way, the demand for oil is going to improve and enhance anyway. The matter is if it would be available at a higher or lower rate?
If they do not conclude matter on positive terms it could drop dead oil demand in Asia and the international oil market would end up in a difficult situation. Out of nowhere, check this home appliance out!