Oil down 2% as market uncertainty over Brexit continues

Oil prices fell about 2 per cent on Monday, weighed by a rallying dollar and continued market uncertainty over Britain’s shock vote to exit the European Union.

Brent and US crude futures have lost about 7 per cent since Thursday’s settlement after the so-called Brexit vote sent global risk assets plummeting on Friday as investors fled to safe havens such as the dollar, US treasuries and gold.

Analysts at Goldman Sachs and other research houses sought to allay fears over the impact of the EU crisis on oil specifically, pointing out that Britain’s demand for fuel is negligible at the global level.

Oil prices rose slightly early on Monday on some of that sentiment, before slipping again. Market intelligence firm Genscape’s report of a draw of more than 1.3 million barrels at the Cushing, Oklahoma, delivery point for US crude futures provided little support.

Brent crude was down $1 at $47.36 a barrel while US crude slipped $1.07 to $46.57.

The dollar was up almost 1 per cent, near Friday’s three-month high, making oil and other commodities priced in the greenback less attractive to holders of the euro and other currencies.

“We feel that a market shock such as Brexit can often induce enough chart damage to force a major long liquidation phase,” said Jim Ritterbusch of Chicago-based oil market consultancy Ritterbusch & Associates.

“But we don’t currently see such a development on the horizon given the crude market’s ability to maintain value above this month’s lows even through the Friday price plunge,” he added.

Goldman Sachs said even if UK economic growth suffered a 2 per cent drop in response to Brexit – on the high end of its estimates – Britain’s oil demand would likely be reduced by only 1 per cent, or 16,000 barrels per day, or 0.016 per cent of global demand.

“This is extremely small on any measure,” Goldman Sachs analysts said in a note.

Morgan Stanley said it was more concerned about a growing glut in refined oil products.

“For near-term oil, we remain most concerned about product oversupply, China demand, the macro outlook, and the likely return of production,” it said in a note.

Chinese refiners have responded to the Asian oil products glut by exporting record amounts of gasoline and diesel fuel to regional markets, eroding refinery profit margins and swelling storage.

– (Reuters)