Dollar Falls on Excess Crude Oil Inventories

The USD is dropping due to excess U.S. crude oil inventories, impacting the price of the U.S. currency in the Forex market.

After a week that started off a bit weak for the Dollar, due to the rise of the Chinese Yuan and other risky currencies, the Dollar receives its strongest blow on Wednesday. And after a tense lull, the greenback seems to be facing an unstable scenario again.

Tense Calm in the Dollar in a Session without High Impact Macro Data
Dollar/crude ratio

Oil prices directly affect the valuation of the dollar. The United States is one of the main players in the oil industry worldwide. Well, it has an economy that is increasingly using energy as a motor. Therefore, it is much more susceptible to the effects caused by the price of oil in comparison to other economies.

Thus, when the United States takes economic measures, directly related to the import or export of oil for the country, the results are directly reflected in the price of the dollar.

Part of these economic measures, which the U.S. government took to stabilize the reopening of its economy, was the advance purchase of 5.7M barrels of oil. This was in order to cover the expenses incurred in the measures taken to curb the Covid-19.

And thus compensate for the demand for fuel in the United States. As such, gasoline and distillate inventories fell last week, according to a report by Bitcoin Formula the Energy Information Administration.

In addition, a slight spike in fuel demand is expected during the summer driving season. More so now that statewide blockages led by the coronavirus have begun to ease in some parts of the United States.

The reason why the price of the dollar falls in the Forex market with these sudden changes in the stock of crude oil, is based on the fact that if one country reduces its oil production, another will fill the gap and lose market share.

Impact on the US Dollar

The West Texas Intermediate (WTI) index provides the highest reference regarding the behavior of crude oil in the United States. This index remained in fairly stable ranges until Tuesday.

The WTI benchmark index was trading on Wednesday morning before the release of the data at $40.71 per barrel. However, crude oil prices fell directly after the release, with WTI threatening to drop back below $40 per barrel.

The dollar falls due to excess crude oil inventories in the U.S. This has repercussions on the Forex market.

Oil price increases have been limited over the last week. Reinforced by the strong performance of OPEC with production cuts and the decrease in the number of daily deaths attributable to the coronavirus in the United States.

However, there are pressures from the growing number of new cases of coronavirus infection in the US, which could greatly affect the recovery in oil demand that we are just beginning to see.