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Global Growth, U.S. Dollar Drag Down Oil Prices

This article was originally published on ETFTrends.com.

Uncertainty regarding global growth and a strong U.S. dollar dragged down oil prices on Monday after the commodity hit $64 per barrel earlier amid U.S. sanctions on Venezuela's oil exports.

Concerns over global growth were spurred when the International Monetary Fund lowered its global growth forecast last month, pointing to ongoing trade wars dampening China’s economic outlook as well as rising interest rates in the United States. The IMF trimmed its growth expectations to 3.5 percent from 3.7 percent while its global growth outlook for 2020 was also cut to 3.6 percent from 3.7 percent.

WTI Crude was down almost 2 percent while Brent Crude slipped 0.62 percent as of 1:00 p.m. ET.

Edward Morse, global head of commodities research at Citigroup, cited a strong U.S. dollar that is making oil more expensive, especially foreign buyers using weaker currencies against the greenback. Additionally, pipeline movements suggesting a potentially big increase in crude stockpiles at the Cushing, Oklahoma delivery hub are to blame.

"I think that's why we've seen most of the WTI sell-off, and the sell-off in WTI has dragged down Brent, not quite as much as WTI," Morse told CNBC's "Squawk on the Street."

New Round of Supply Cuts

To start 2019, OPEC and Saudi Arabia instituted supply cuts that paired with the sanctions in Venezuela. As such, exchange-traded funds (ETFs) like the United States Oil (USO) gained over 15 percent.

Global Growth, U.S. Dollar Drag Down Oil Prices 1

USO seeks the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in the price of a specified short-term futures contract on light, sweet crude oil called the “Benchmark Oil Futures Contract." USO seeks to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels.

"You have the sanctions on Venezuela, on top of the reduced supply from Saudi Arabia," said Olivier Jakob, oil analyst at Petromatrix. "There's no sign of overhang in the crude oil markets."

Counterbalancing that supply cut, however, is a supply increase by the United States, which could temper oil prices in the future.

"This points to a less pronounced rise in U.S. oil production," said Carsten Fritsch, analyst at Commerzbank. "The oil market is more or less balanced," Jakob added.

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