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Oil prices decline as rate increases lead to concern of weaker crude demand

By Renzo Pipoli
Crude oil prices fell Thurday morning on concern that rising interest rates may affect crude oil demand. Photo by Monika Graff/UPI | <a href="/News_Photos/lp/1bb985186750d3a401a079bc1d8f709f/" target="_blank">License Photo</a>
Crude oil prices fell Thurday morning on concern that rising interest rates may affect crude oil demand. Photo by Monika Graff/UPI | License Photo

Dec. 20 (UPI) -- Crude oil prices fell Thursday as investors worried that interest rate increases could cause declines in demand amid oversupply conditions.

As of 10:00 a.m. EST, West Texas Intermediate crude oil future prices fell 3.1 percent to $46.68 per barrel, while Brent crude future prices declined 2.6 percent to $55.77 per barrel.

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"This morning's drop had been exacerbated by increasing worries over weak demand with risk markets dented by the Federal Reserve's decision to roughly maintain its guidance regarding additional rate hikes," DailyFX analyst Justin McQueen told UPI.

Rising interest rates may affect borrowing, which can slow the economy and in turn lead to reduced crude oil demand.

In addition, higher interest rates in the United States can make the U.S. currency stronger compared with that of other countries. Since crude oil trade is mostly done with U.S. dollars, and crude future trading instrument prices are denominated in dollars, an appreciation of the U.S. dollar against other currencies makes oil more expensive for the rest of the world.

The Federal Reserve on Wednesday increased its benchmark interest rate one-quarter point to 2.5 percent, and said that two more adjustments could be expected in 2019.

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The increases are coming at "a time where U.S. data and equity markets have underperformed," McQueen added.

The Dow Jones Industrial Average has declined from 25,825.43 points on December 3 to 23,163.74 on Thursday morning, an 8 percent drop. Traders have mentioned, among other reasons, concerns about a trade dispute between the United States and China potentially affecting the worldwide economy.

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