Oil and the dollar: understanding crude and the USD’s inverse relationship

Oil prices fell in mid-November as the US dollar extended its gains following the Federal Reserve’s reaffirmation of a “higher-for-longer” interest rate stance.

As of November 2025, Brent crude futures traded around $64 per barrel, while US crude (WTI) hovered around $59.86 (Reuters, 20 November 2025). Meanwhile, the US dollar index (DXY) reached its strongest level since July, as investors scaled back expectations for early rate cuts after a series of cautious remarks from Fed officials (Trading Economics, 20 November 2025).

This hawkish tone lifted US Treasury yields, supporting the dollar and weighing on dollar-denominated commodities such as oil. A stronger dollar makes crude more expensive for buyers using other currencies, typically dampening global demand (Reuters, 4 November 2025).

US crude price chart

Past performance is not a reliable indicator of future results.

The inverse relationship between oil and the dollar

Crude oil and the US dollar typically move in opposite directions. When the dollar strengthens, it often exerts downward pressure on oil prices, as both assets compete for investor flows. Because oil is priced in US dollars, an appreciation in the currency makes crude more expensive for buyers using other currencies, which can dampen demand.

This dynamic is partly rooted in the “petrodollar” system established in the 1970s, under which oil transactions are largely settled in US dollars. When the dollar rises, purchasing power outside the United States decreases, leading to lower demand for oil. Conversely, when the dollar weakens, crude becomes relatively more affordable, which can support higher consumption and prices.

Brent crude price chart

Past performance is not a reliable indicator of future results.

The Fed’s stance and the dollar’s influence

The Federal Reserve’s approach to monetary policy can play a significant role in shaping the value of the US dollar and, by extension, its relationship with commodities such as oil. When the Fed maintains a firm or data-driven policy stance, interest rates may remain relatively high for longer, supporting the dollar. Conversely, expectations of monetary easing can weigh on the currency and influence demand for dollar-denominated assets.

A stronger dollar tends to pressure oil prices, as it increases costs for non-US buyers. In contrast, a softer dollar can make oil more affordable in other currencies, potentially supporting consumption. These dynamics highlight how monetary policy and currency strength interact across global markets.

OPEC+ supply strategy and oil market balance

OPEC+ plays a central role in adjusting production to maintain equilibrium in the oil market. The group has, in recent years, taken a gradual and measured approach to output changes, balancing supply with evolving demand conditions. This strategy aims to limit sharp price fluctuations while preserving market stability and member revenues.

Production targets are reviewed regularly, with decisions influenced by factors such as seasonal demand, inventory levels and geopolitical developments. The alliance’s flexibility to increase or cut production helps mitigate volatility, especially as energy demand growth remains uneven across regions.

Potential impacts of a strong dollar vs weak oil

The interaction between a resilient US dollar and OPEC+’s managed production strategy often results in oil prices trading within a relatively stable range. A strong dollar can curb global demand, while steady supply discipline supports overall balance.

At the same time, moderate global growth and fluctuating inventories continue to shape price trends. The ongoing adjustment between monetary policy effects and supply-side management underscores how currency strength and output strategy jointly influence oil market behaviour.

USD/EUR chart

Past performance is not a reliable indicator of future results.

China’s gradual move towards non-dollar energy trade

China has continued to explore energy settlement in yuan (CNH) as part of a long-term effort to diversify away from the dollar in key commodity trades. Progress has been incremental, with limited participation from major exporters, yet it marks a broader trend towards diversification in global energy transactions.

While the US dollar remains the dominant settlement currency, the gradual introduction of alternative arrangements suggests a slow evolution in international trade practices rather than a structural shift.

Key takeaway

The inverse relationship between oil and the dollar remains a defining feature of global markets, although its strength fluctuates with monetary, supply and geopolitical factors.

Over time, Federal Reserve policy, OPEC+ production decisions and emerging trade practices such as yuan-denominated energy transactions all contribute to how these two assets interact. As such, understanding the balance between currency movements and oil market fundamentals remains key to interpreting their long-term dynamics.

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