crude oil inventories and the dollar

how do crude oil inventories (not necessarily the price of oil) impact the US Dollar? is it more or less an inverse relationship where lower than expected inventories signal a strengthening dollar or is it a direct relationship where an increase in inventories triggers the dollar to strengthen? thanks

Basic answer: crude oil inventory doesn't affect the US Dollar, though things that affect the inventories can also affect the dollar.

Originally Posted by Wraisil

Basic answer: crude oil inventory doesn't affect the US Dollar, though things that affect the inventories can also affect the dollar.

examples? i noticed a drop in eur/usd (indicating stronger dollar) right after the lower than expected crude oil inventories report came out this morning. seems like this was a catalyst but i'm looking into how/why.

Originally Posted by sladha

examples? i noticed a drop in eur/usd (indicating stronger dollar) right after the lower than expected crude oil inventories report came out this morning. seems like this was a catalyst but i'm looking into how/why.

Lower than expected inventories indicate that either production was lower than anticipated or that demand was greater than expected. A demand greater than expected indicates consumer spending greater than anticipated which is an indicator of positive economic strength, or at least less negative than expected. Economic strength increasing is an indicator of a stronger economy and as such, the value of the economies currency, in this case the U.S. dollar is likely to be higher than anticipated before that news.

Crude inventories themselves fluctuate but, in general, have a fairly predictable range. The value of the dollar (as measured by the dollar index /dx, or against other currencies on the forex markets) is different however. It is not controlled nearly as tightly as crude inventories.

point noted in your explanation re. demand being greater than expected, thanks. however, take the former case where production is lower than anticipated as opposed to demand greater than expected. could this potentially signal decreased economic strength (decrease production -> decrease output -> decrease economic strength)? if so, i guess it's worth finding out the reason for the decrease in inventory to gain an understanding of the factor(s) at play.