Petrocurrency
Tue, Apr 15A petrocurrency refers to the currency of an oil-producing nation where the proportion of oil exports relative to total exports is significant enough that the currency's value fluctuates in tandem with oil prices. In simpler terms, a petrocurrency gains value when oil prices increase and loses value when oil prices decrease.
Due to the substantial share of oil and gas exports, the currency tends to rise and fall in correlation with oil prices. If the proportion of oil and gas exports continues to grow, the relationship between oil prices and the exchange rate may strengthen even further.
Countries that heavily depend on oil export revenues include Saudi Arabia, Russia, Norway, Canada, and Mexico. Although the U.S. has recently entered the top five in crude oil exports, it is not yet classified as a petrocurrency.
Examples of petrocurrencies that are significantly affected by oil price fluctuations include:
- Canadian dollar
- Russian ruble
- Colombian peso
- Norwegian krone
- Brazilian real
When oil prices decline, the following currency pairs typically appreciate:
- USD/RUB
- USD/NOK
- USD/CAD
- USD/MXN
- USD/CLP
- USD/BRL
Other exporting nations whose currencies are closely tied to oil prices include Saudi Arabia, Iran, Iraq, Nigeria, and Venezuela.
You can monitor individual petrocurrencies on MarketMilk™ via the Petrocurrencies watchlist. Another method to track the performance of petrocurrencies is by observing the MarketWatch PetroCurrency Index (MWPC), which measures the U.S. dollar against a selection of currencies weighted according to their share of global oil production, as compiled by the U.S. Energy Information Administration.
Some well-known Middle Eastern countries, including Saudi Arabia, have been excluded from this index because their monetary authorities maintain a close peg of their currencies to the dollar.
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