Brent crude prices are on the rise from the Russia-Ukraine war and unusually despite the increasing value of the US dollar, which normally would make dollar-indexed oil less attractive for investors, the US Energy Information Administration (EIA) said Tuesday.
As crude oil is priced in US dollars, purchases in other currencies are not only affected by the dollar price of crude, but also by the exchange rate to the dollar, the agency explained.
Since June 1, 2021, the price of Brent has increased 59% in US dollars and 86% in euros, the agency said.
Under normal market conditions, a strong US dollar means that countries using currencies other than US dollars pay more as crude oil prices increase.
The price of crude oil and the value of the dollar generally move in opposite directions so these factors offset each other. However, the price of Brent crude and the value of the US dollar have recently both increased.
“Recent increases in short-term US treasury yields may be contributing to higher demand for US government bonds, which increases demand for US dollars and, therefore, the value of the US dollar against other currencies,” it said.
It further explained that the value of the US dollar also increases when it is considered a safer investment compared with other currencies.
“Recent global events, including Russia’s full-scale invasion of Ukraine and concerns caused by COVID-19 mobility restrictions in China, may also be increasing demand for the US dollar,” the EIA said.
By Sibel Morrow