The dramatic 10-month drop in the price of oil could be due to ultra-loose monetary policy by the U.S. Federal Reserve, according to a senior analyst at a major financial services company.
Mark Lewis from Kepler Cheuvreux said on Monday that the boom in U.S. shale gas production over the last few years that had helped push down oil prices was partly driven by the Fed's "very, very low interest rates."
"The financial dimension to the shale story is hugely important," he told CNBC. "I think it's questionable whether we would ever have had the increase in oil production we've had out of the shale plays over the last three or four years if we hadn't been in this environment."
The Fed has held its target range for the federal funds rate at 0-0.25 percent since the end of 2008. With rates so low, banks have been able to lend money at cheaper rates than would be usual in a healthy economic environment.
Lewis said that the nascent shale industry—in which the "unconventional" gas is drilled from the ground in a process known as hydraulic fracturing or "fracking"— has boomed as a result of access to ultra-cheap financing, flooding the market as a result.
Many analysts, including the International Energy Agency, see high U.S production as a key factor behind the price drop, along with global weak demand and the Organization of the Petroleum Exporting Countries (OPEC)'s refusal to cut its own production.
The Fed started aggressively expanding its balance sheet shortly after the global financial crash of 2008, in a program that became known as QE 1. The central bank then started a second program in 2010, before launching its third open-ended $85 billion-a-month program in late 2012.
This aggressive easing has now been dialed back and the Fed is widely expected to raise its main benchmark interest rate this year.
Where next for oil?
Oil has seen a rebound in recent weeks, with indicators suggesting demand has picked up and production is slightly down. On Friday, for a record 19th straight week and was now at its lowest since 2010.
However, Brent and U.S. crude gains were pared by news from Saudi Arabia—a key decision-maker in OPEC—on Monday. The country's oil minister, Ali al-Naimi, said Saudi oil production would remain at 10 million barrels per day in April, according to Reuters. This is near record highs for the world's biggest crude exporter and has scuppered any hopes that it might cut production.
Brent crude futures traded around $63.80 a barrel early on Monday, with U.S. crude futures around $56.20 a barrel.
Kepler Cheuvreux's Lewis forecast there would be some consolidation in the price of oil over the coming months. He said that the U.S. "fracklog" —the number of drilled shale wells that are not yet in operation—needs to be cleared before any serious gains are registered in the oil prices.
He saw Brent crude closing out the year at $75 per barrel.
Lewis added that refinancing would become an increasing issue for U.S. shale producers.
"We're going to have first quarter results in the next two or three, four weeks, and I think they're going to be absolutely dreadful," he warned.