Top crude oil producers and trading forex
The United States has become the world's leading oil producer, but the relationship between the US dollar and crude oil prices is not always predictable. Discover current correlations between crude oil and forex pairs.
Key points
- US is now the leader in world oil production (21%), followed by Saudi Arabia
- $70/barrel has been the 20-year historical average for Crude Oil, with prices in recent years primarily higher
- GBP/USD touts the strongest correlation to Crude Oil among US dollar pairs, at -0.81
How do oil prices affect forex?
Understanding the complex interplay between crude oil prices and currency values is essential for traders looking to navigate the often-volatile forex market. This relationship is particularly significant for countries whose economies are heavily reliant on crude oil production, such as Canada, Saudi Arabia, Russia, and notably, the United States - now the top crude oil producer globally.
US dollar and oil
The United States has seen a substantial increase in its crude oil production over the past decade, with a 45% surge in output since 2014, solidifying its position as the world's leading oil producer. This has inevitable repercussions for the forex market, given that crude oil is primarily priced in US dollars (USD). Theoretically, if USD appreciates, crude oil, denominated in USD, should depreciate, and vice versa.
However, the relationship between the USD and crude oil prices is not always straightforward. In recent years, both the US dollar and crude oil prices have trended higher, diverging from their historically inverse correlation. This phenomenon can be attributed to several factors, including increased global demand for crude oil, geopolitical tensions, and the economic rebound post-pandemic.
For instance, despite the US dollar's bullish run amidst aggressive rate hikes, crude oil prices have remained above the $70/barrel mark, indicating robust demand. Geopolitical issues, such as the conflict between Russia and Ukraine, have also influenced oil prices due to their proximity to major oil-producing nations.
Forex correlations to crude oil
- GBP/USD: -0.81
- AUD/USD: -0.74
- EUR/USD: -0.69
- USD/CHF: +0.65
- USD/CAD: +0.63
- USD/JPY: +0.58
Traders should pay close attention to the correlations between forex pairs and crude oil prices. Recent data has revealed strong negative correlations between crude oil and major currency pairs like GBP/USD, AUD/USD, and EUR/USD, while exhibiting positive correlations with the U.S. dollar against various currencies.
It's crucial to note that these correlations are dynamic and subject to change, reflecting the fluid nature of the markets. For example, while the Canadian dollar has historically shown a positive correlation with crude oil due to Canada's status as a major oil producer, recent data indicates a negative correlation.
In conclusion, traders must remain vigilant and adaptable, as the relationships between crude oil prices and currency values can shift rapidly. By staying informed and analyzing current trends, traders can better position themselves to capitalize on the intricate dance between these two critical market forces, harnessing the knowledge of production trends, geopolitical events, and economic shifts to make informed trading decisions.
How to trade USD
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open and close positions on USD
Trading forex requires an account with a forex provider like IG. Many traders also watch major forex pairs like EUR/USD and GBP/USD, which can be found in IG's platform under the 'Major' pairs tab, for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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