Some are blaming the 2014 crude oil collapse on the strength of the US dollar; what are your thoughts?
The hideous decline in crude oil during the latter half of 2014 was the result of several factors at work; however, I do believe the biggest role player was the currency market. At the time of this writing, the correlation between crude oil and the greenback was hovering near 91%. In other words, roughly 9 out of 10 occasions the price of crude oil had moved in the opposite direction as the dollar (during a 180 day data set). Thus, any significant re-pricing in the dollar vs. other major currencies has a profound impact on crude oil.
A quick look at the chart tells a profound story of the relationship between crude oil and the U.S. dollar. In July of 2014, the greenback found footing and forged a sharp rally; crude oil simultaneously peaked and fell precipitously. It is difficult to argue that each market is moving independently of the other.
