RE:RE:EIA Crude Draw -4.58m, Gasoline builds 1.3mToday is a far different oil world than a year ago, undergoing tremendous and volatile changes.
The USD does play a role in all commodity prices as the USD rises and falls to other currencies. Here is DXY over the year, as you pointed out. It has made a round trip in 12 months, when oil was trading at $105.
So, regarding oil, since then we have had the easing of fear of Russian oil loss to the market, a vanishing oil war premium as the war drags on without large gains in a relative stalemate, 220 m bbls of SPR releases, rate hikes, European energy crisis avoided, nordstream sabotage, embargos, price caps, recessionary fears, slowing economies, failure to refill the SPR, peace breaking out in the middle east, etc.
With all these hits and current headwinds for oil, it has held prices extremely well IMO, and is not plunging as it well should under these conditions, merely bouncing around the $80 mark.
Why has it held up so well? The first half of this year was already expected to have a supply and demand balance, however during the upcoming summer and the second half, this will turn to a deficit, as global demand begins to exceed supply and that gap continues to widen going forward. OPEC+ has stepped up to support prices when they pull back, and that offers market stability despite the efforts of the paper traders and trading houses trying to push it around, (like today).
The oil market has become far more stable, as all players have now seemed to have learned that increasing production to gain market share is a painful no win scenario, as the Saudis have repeatedly demonstrated their power to flood the market with their low lifting costs and storage in order to win any price war, and bring things back into balance. US shale industry was wiped out and restructured, the Russians got whacked along with the entire market in 2020 when they refused to cut, etc. Now, everyone seems to understand the benefit of being able to sell less oil at a higher price and make more money.
For producers, oil market fundamentals going forward remain strong, balance sheets are improving, and debt is being paid down. The path going forward as laid out by managements has been clear, and it is being proven with debt paydowns, production growth restraint, and a clear plan and execution to return cash to shareholders. Production does not have to grow in order for these companies to reap tremendous rewards going forward with what they have in place already. Growth is not a necessary part of the model anymore, and cumulatively, helps to maximize profits for the duration of the longer term asset life cycle.
Experienced wrote: Lots of great charts my friend but here is what I am looking at....
Brent and WTI are priced in US dollars (so far) and so if the US dollar weakens against other currencies such as the Euro, then oil prices should go up. What we have seen is the exact opposite.
Last Fall, the US dollar Euro exchange rate was 98 cents - you could buy a Euro for 98 cents US. I bought a ton of Euros at that time (see my posts from back then) as a trading position and also as cash for my European vacations. At that time the price of WTI was 92 a barrel.
Since then the US dollar has depreciated against the Euro and it now takes a dollar and 10 cents US to buy a Euro. While this has been going on, the WTI price has gone down to about 80 dollars - not up.
The message is quite clear to me - these charts are great but there are some more powerful things going on that are not good for oil and by extension investors in oil.