What does the recent bad US jobs report have to do with the price of oil?

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By Jacob Maslow

young woman looking for jobIt turns out quite a bit, the US Federal Reserve is currently seriously weighing whether to raise interest rates or not. It has already signaled that it will be raising interest rates and the only question is when it will take place. Whenever the equities markets feel that the US Federal Reserve will start raising interest rates, the market tanks. Also, the US dollars spikes up.

If the US Federal Reserve’s decides to hold off on interest rates hikes due to the weakness in the US job market. This can have a tremendous positive impact on oil and gas. How? Keep in mind that the US dollar and commodities often move in opposite directions. For example, if the price of oil goes up, the price of dollar decreases. If the price of the dollar increases, on the other hand, the price of oil tends to go down. It’s only been rare in terms of financial history for both the indicators to move in the same direction.

If the US Federal Reserve holds off on raising interest rates, this will put tremendous downward pressure on the US dollar. The dollar would become cheaper. When the dollar becomes cheaper, the price of oil tends to appreciate. A lot of the recent upward movement of the price of oil can be traced to weakness in the US dollar. As the dollar becomes cheaper, oil prices will grow up, and this can impact oil and natural gas stocks for the better.

It also has a secondary positive effect on the US economy because the products of multinational American corporations can become more competitive. Cheaper pricing would make their products and services more attractive and this can lead to greater job creation. You have to understand that the US economy is a walking a fine line. The US dollar can’t get too strong or else it can lead to job losses, which can have a multiplier effect. It can’t get too weak, on the other hand, because that can explode the price of oil and other imports which can impact consumer spending.

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