When Oil Prices Dip, Unexpected Winners Emerge [United States Oil Fund LP (ETF), ProShares Ultra DJ-UBS Crude Oil]

crudeoilA stronger dollar is one of the reasons that oil prices are low, which serves many energy-importing economies in Asia while weighing on large oil-producing nations.


Most economic measures last week suggested the U.S. economy continues to improve, pushing U.S. stocks to another record close and suggesting the time has come for the Federal Reserve (Fed) to start normalizing U.S. monetary policy. As I explain in my new weekly commentary, this strength provides a boost to the U.S. dollar, which in turn is helping to drive oil prices down. This could have positive implications for some countries, and negative consequences for others.

A stronger dollar is one reason—along with a slower global economy—that commodity prices in general, and oil in particular, continue to fall. Since oil is traded in U.S. dollars, when the dollar moves higher, oil prices tend to fall. This is exactly what has been happening: Last week, the U.S. oil benchmark West Texas Intermediate (WTI) traded down to its lowest level since 2009. The latest catalyst for the move was news that Saudi Arabia cut its prices for the United States. Comments later in the week suggested OPEC may be willing to let prices fall as low as $70 per barrel before the cartel takes any action to curtail production.

It comes as little surprise that among the beneficiaries of falling oil prices are U.S. consumers and consumer discretionary companies. But we are seeing other areas of the market outside of the United States where it is having an effect as well.

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