Why a rate hike could be good for oil
The market can’t seem to make up its mind on crude oil.
The battered commodity has recently traded in a wide range of sharp swings, and has plunged more than 52 percent over the course of one year.
But looking ahead, Darren Wolfberg, head of U.S. cash equity trading at BNP Paribas, said that there could be good news for oil on the horizon, specifically in a rate hike from the Federal Reserve.
Theoretically, a rate rise should be bad for oil, because increased interest rates would strengthen the U.S. dollar against other country’s currencies.
Meanwhile, oil is inversely related to the dollar, because as the greenback rises, the value and price of oil, bought in U.S. dollars, tend to fall.
However, Wolfberg said expects the opposite to happen for two reasons.
“Historically when the Fed raises rates, that’s actually the top in the dollar,” Wolfberg said Tuesday on CNBC’s “Futures Now.” “Secondarily, the Fed’s going to raise rates because the economy is good. And usually that means more demand of oil.”
Crude oil has struggled to break above $47 a barrel in September, Wolfberg said Tuesday afternoon, but if it reaches above that level, he could see oil back up around $50 to $60.
Until oil recovers, “I think you really gotta buy the dips and sell the rips,” he said Tuesday.
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