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Fed Interest Rate Increase Slaps Down Oil Prices

The Federal Reserve’s decision to raise short-term interest rates by a quarter point strengthened the dollar and made dollar-priced crude cheaper.

The Federal Reserve today announced it would raise short-term interest rates by a quarter of a percentage point. One of the immediate effects of the decision was to push the price of oil downwards, erasing gains from earlier in the week.

No matter where in the world oil is produced, the price of a barrel of crude is set in U.S. dollars. The stronger the dollar gets, the lower that price per barrel goes.

“The expectations of monetary policy in the U.S. moving in one direction [up], which may be divergent from what’s happening in Europe and other parts of the world, could strengthen the U.S. currency, and that could have downward pressures on oil prices,” says Nathaniel Karp, chief economist at BBVA Compass.

The value of the dollar has climbed roughly 18 percent since June 2014. Over the same period, the price of oil has fallen by about two-thirds.

Karp notes that there are other, more important factors forcing the price of oil down – chiefly a global glut in production, coupled with weak demand in China and elsewhere in the developing world.

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Andrew Schneider

Politics and Government Reporter

Andrew heads Houston Public Media’s coverage of national, state, and local elections. He also reports on major policy issues before the Texas Legislature and county and city governments across Greater Houston. Before taking up his current post, Andrew spent five years as Houston Public Media’s business reporter, covering the oil...

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