Pay attention! There is an Influence of Oil Prices on USD and Forex Trading
As a forex player who has just entered the world of trading, you must know that there are many factors that influence the movement of currency values. These factors fall into the fundamental category which greatly affects the price movements of a currency. One commodity that has an influence on currency price movements is world oil.
Effect of Crude Oil
Crude oil or often referred to as Crude Oil is a commodity or requirement that is widely used by people in the world. Until now world oil needs are increasing along with the development or population growth in the world.
Crude oil found from mining will be used for fuel purposes such as diesel, gasoline, aviation fuel and so on. Nearly around 84% of the world’s crude oil will be processed into vehicle fuel.
Crude oil in the world is measured using a barrel which is a gauge of crude oil against the USD. The United States Dollar is used as an oil exchange tool because the USD is the most widely known currency in almost all of the world. In addition, the United States is one of the countries in the world that has the highest oil consumption in the world.
Some Oil Categories that are Traded in the World
-West Texas Intermediate (WTI) which is the highest quality oil and produced in Cushing, Oklahoma.
-Brent Blend consists of 15 types and is tested using the Brent and Ninian systems. This oil is produced in the waters of the East Shetland Basin.
-Furthermore, Dubai-Oman is supplied to Middle Eastern and Asia Pacific countries.
-Tapis is produced in Malaysia and supplied to East Asian countries
-There are also Minas produced in Indonesia and supplied to East Asia
– Finally there is OPEC Basketball referance produced by OPEC member countries.
Effect of Increase in World Crude Oil Prices
When world oil prices increase, the value of the USD currency will weaken. This can happen because the oil consumption burden will increase and this will certainly affect the trade balance of the United States.
The next effect that occurs is that the value of currencies from routine exporting countries such as Canada and Norway will increase. Currency pairs paired with USD will weaken.
What is the Crude Oil Relationship with USD?
The first thing you need to understand is that United States currency is the currency used in international transactions. This means that purchases and sales on the international market will use the USD currency.
When the American currency strengthens it means that the USD can buy more barrels of oil per dollar issued. Simple examples like this, if previously the oil price of USD 50 / barrel then dropped to USD 47 / barrel, meaning that more oil could be bought using USD.
Not only that, the United States is also a country that is the largest importer of crude oil in the world. When world oil prices rise, it will need more USD to spend to get world crude oil. Another thing you need to understand next is the United States is also included in the country that produces the largest crude oil. So that when crude oil prices rise, they can also benefit from crude oil imports to the rest of the world.
Effect of Other Crude Oils to Look For
As we explained earlier that crude oil is a commodity that is much needed by people in the world. There are many economic sectors that depend on the presence of crude oil.
Seeing the importance of oil commodities for the economy makes many parties give the term “Black Gold” which refers to world oil. They regard gold as a very important and valuable commodity in the world.
Canada is the country that produces the largest crude oil in the world and they sell about 2 million barrels of oil every day. So as to make Canada the largest crude oil supplier to the United States.
Seeing this relationship makes the transactions that occur affect the demand for a very large Canadian currency.
Another fact that you need to understand is that Canada’s economy relies heavily on crude oil export activities which reach 85% carried out to the United States.Thus it is very reasonable if the CAD / USD currency pair is very influential on consumer attitudes towards changes in world oil prices.
As US demand for oil increases, producers will increase production and this will increase oil prices and this will allow the USD / CAD pair to decline.
Likewise, on the contrary, if the demand for oil falls, the producer will reduce its production and this will cause world crude oil prices to decline and make the USD / CAD pair strengthen.
Through the above explanation, we can understand that world oil prices have a negative influence with USD / CAD. This means that when world oil prices rise, the USD / CAD pair will experience a weakening and if oil prices fall, the USD / CAD pair will strengthen.
Thus we can understand that the information related to crude oil is very important for you to know as a forex trader. You can visit financial information sites like Bloomberg to monitor the movement of world oil prices. This really helps you do the analysis related to the currency pair you are trading.
Crude oil is the biggest commodity that is needed by most people in the world.With the existence of these facts it is very natural if oil prices affect the value of a country’s currency. USD is one of the currencies that has an effect on the movement of world oil prices. Likewise with other currency pairs related to USD.
We hope the information we have conveyed above can provide a lot of important knowledge for you all. If you still have questions related to the information above, do not hesitate to ask through the comments column below. We will be happy to answer faithfully the questions that come in.
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