Oil price has dipped the lowest in almost seven years. The last oil price plunge was since 2009. There are two factors taken into considerationâ€”first is the expected Fed interest rate hike, second is the overproduction of oil in the global market.
The US Federal Reserve System has justified the criteria for an interest rate hike because of the strong US economy. The Fed is yet to convene again next week on Dec. 15-16 as the last policy meeting this year to finalize whether to raise interest rates. This will be the first interest rate hike in over nine years.
The interest rate will boost the dollar which would make the dollar-priced oil more expensive to other currencies. This leads to lower demand thus lowering the oil price.
Overproduction of Oil
The Organization of the Petroleum Exporting Countries (OPEC) meeting last week ended without an agreement to lower oil production despite the oversupply of oil in the global market. This has brought the oil price to plummet.
OPEC countries are producing an estimated 32 million barrels per day, which is above the 30 million barrel target.