Currency Prices

Currency Prices Affecting Oil Prices

Fri Dec 18 2020 09:24
During this year, oil prices have not seen much growth. Crude oil prices remain steady most of the time during a pandemic. What affected oil prices? Is it the forex exchange rate which had its impact on oil markets? We cannot say that the only reason is currency prices, but it is true to an extent. 

Currency prices are affecting oil prices in a direct or indirect way. On the same hand, oil and energy markets are also impacting foreign exchange rates.  

These both global financial markets get a blow by each other besides the global events held in the world. The biggest example is the timeframe of the COVID-19 pandemic. During this time, oil prices were falling but, the currency price for many major currency pairs was increasing. 

So it is clear that both of the economic markets are in relation to each other. Here we will tell you how currency prices reacted to Oil prices and vice-versa. 

What Happened This Year? 

Before we start discussing the impact of currency prices on Crude oil and vice versa. We must try to understand how these markets were performing this year. How the major currencies have their position in the forex market during a pandemic. And how commodities like Crude oil performed during these hard times. 

Well, we all know that there was a good time for forex. This is because the major currencies were growing even during COVID-19.  

But, there were some pullbacks seen among some currency pairs. Crude oil has seen a huge decline in the global market due to the lockdown implemented worldwide. And, after the pandemic started striking all the major countries. 

Now, when we are in the last quarter of the year, crude oil prices are being steady. Claims are there that next year oil prices will rise after the launch of the coronavirus vaccine.  

US Dollar And Crude Oil Connection 

What is the connection between the United States dollar and the major commodity oil? Well, most of the aspiring traders don't know that. Some new forex traders say what to do with oil market rates if only currencies are being traded in their market. All these markets are in a chain and oil-price is in relation to other commodities.
These commodities include Gasoline, Petroleum, Natural gas, and more. These come along with currencies like USD, Euro, GBP, and many more. Be it commodity, stock, share, precious metal to forex pairs. US-dollar is the primary currency for their trade. 

So everything has some connection with it. You can understand the connection between these two major investment instruments. Refer to the below two trade scenarios.  

First Scenario:  

The first scenario is when the US dollar is becoming stronger and growing in the global market. Then you will need less American dollars to buy crude oil, because of the gain in currency prices. So the crude oil will become cheap at that time. 

Second Scenario:  

The second scenario is when the American dollar is falling and becomes weak. Then at that time, the world will need more US dollars to buy crude oil. So the prices of crude oil will increase in this due to the balance of trade. 

No Same Impact On Whole Market 

No, there is no same impact on the crude oil prices on the whole market. Whether it is a commodity market, forex market, stock market, or any other global trading market. 

Currency prices are also getting a blow from oil prices in a different way. Different currency pairs will have different impacts on them. It is because of the petrodollars. The difference between the receipt of more petrodollars and paid petrodollars always changes.  

Some Currencies Fallen 

Prices of currencies and crude oil futures are impacted when there is a change in Brent Crude oil prices and WTI crude oil prices.  

So what countries take advantage of this? Well the countries that are exporters and producers, will get more benefits. This will happen when the prices of oil are increasing. So they will receive more petro-dollars and their currencies will grow in a rapid way. 

But when the price of crude will have fallen, the currencies of these countries will fall. Also, the nations that have major oil firms will face a drop in their national currency prices.  

Currencies That Grow WIth Oil 

Countries that are not among the oil producers nor have any major refineries will benefit when the oil industry is facing a recession. Because they don't have to pay more petrodollars to oil countries like Russia, and Gulf states.

Commodities Market Has Different Impact 

Let's talk about one other major financial market. Yes, the commodities market has an influence on crude oil prices in a different way. Some currency prices fall with oil prices. But commodities like agricultural products will increase with the oil price gain.  

Different Impact On Producers & Consumers 

Countries that are producing and the ones that are paying the crude prices will see different effects on currency prices.  

Other than this, some countries that are the biggest consumers of oil supply won't face issues. So different situations occur with the crude oil production market. 

Producers And Exporters 

Let's talk about the currency prices of the oil producers and oil exporter countries. These countries are earning a lot through crude oil. But also they face problems when they have to pay more money on refining. Situations like excess supply also impact them. 

During the covid-19 pandemic, these countries were facing issues due to no demand for crude oil by consumers. But in normal time, the gulf countries are earning billions of dollars through oil. 


Consumer categories are the second type that comes in the list as per Crude oil production. Countries like the United States are the biggest consumers of crude oil but the US is also the largest oil producer. So they don't see much impact of the crude futures price on their currency prices. 

That is why the USD kept growing when the crude oil price was even dropped to $40 per barrel. The US Oil production saves the USD from hitting volatility. The same thing happens with Iran and the Iranian oil production companies.  

Consumers of Imported Oil 

Now the third kind of country is those who are not producing oil but they are the biggest consumers. They pay the spot-price to buy crude oil from countries like Saudi Arabia. Such countries face an impact on commodity prices. Because they are dependents on others. 

Countries like India are not good at production but they are the biggest consumers. Oil demand in such countries is huge. So whenever the price of a barrel of oil is facing a slump, the currency prices of such countries go up. 

Conclusion - Currency Prices

So you can see how these both commodities are impacting each other. From the United States oil production to other countries' consumption. They all impact the variations in currency prices. Whether you are a forex trader or a commodity trader.  

You must keep in mind that spectating other markets are very important. If you don't know what is going on in other markets then it won't be possible for you to trade in a profitable way. So always keep a track of all the major commodities like crude oil etc. if you want to trade currencies in a better way.  

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