The oil price dipped below $55 a barrel this afternoon after Kuwait said Opec had no choice but to keep production steady.
The announcement reversed yesterday's brief rally in the cost of Brent crude, which followed the US Federal Reserve's signal that it would soon raise interest rates for the first time since the US economy slipped into recession seven years ago.
The dollar fell sharply in reaction to the Fed's comments, raising the price of oil as well as metals priced in the currency, Reuters reports.
"One of the biggest headwinds we’ve had has been the rising dollar," Phil Flynn, an analyst at the Price Futures Group in Chicago told the Wall Street Journal.
But Brent's gains of almost $2 a barrel slipped away after the dollar snapped back by more than 1.5 per cent. At 3.30pm today, it was trading at $54.35. Since last June, the oil price has fallen from a peak of $115 per barrel, bottoming out at $45 in January.
The drop follows comments from Kuwait's oil minister, in which he said that Opec had no choice but to maintain its current levels of production. "We don’t want to lose our share in the market," Ali al-Omair said.
Oil investors and traders are monitoring a growing oil glut as supply remains steady despite the drop in global demand.
US crude inventories are now at their highest level since 1930. Crude stocks in the country went up by another 9.6 million barrels last week, according to data from the Energy Information Administration.
Traders are also concerned that the tank complex at Cushing, Oklahoma will reach capacity in the next few weeks, the Financial Times reports.
Andy Lipow, a Houston-based energy consultant, warned that if the US oil industry is to avoid a storage problem, something will have to give.
"We can’t continue on this pace indefinitely," he said. "In order to keep inventory from continuing to build, it will require that refiners kick up runs, domestic production levels off or starts declining or there's a reduction in imports."
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