Analyst: Fed's loose monetary policy could be a reason for oil drop

According to a senior analyst at a major financial services company, the horrific 10-month drop in the price of oil could be due to ultra-loose monetary policy by the U.S. Federal Reserve.

In an interview with CNBC, Mark Lewis from Kepler Cheuvreux said that the Fed's "very, very low interest rates"  influenced the boom in U.S. shale gas production over the last few years that had helped press down oil prices.

"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."

Since 208, the Fed has held its target range for the federal funds rate at 0-0.25 percent. With such low rates, banks could lend money at cheaper rates than would be usual in a healthy economic environment.

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, Lewis said.

The International Energy Agency along with a number of analysts sees 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 Federal Reserve began to aggressively expand its balance sheet shortly after the global financial crash of 2008, in a program that became known as QE 1. In 2010 the central bank then started a second program, 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. 

Mr Lewis estimates that there would be some consolidation in the price of oil over the coming months. The U.S. "fracklog" - the amount 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 and also added that refinancing would become an increasing issue for U.S. shale producers.