Oil Falls Further on Brexit Result; More Volatility to Come
27 June 2016 - 1:18PM
Dow Jones News
By Jenny W. Hsu
Oil prices extended their decline in early Asian trade Monday as
repercussions from U.K.'s unexpected decision to leave the European
Union continue to rattle financial markets, putting risk assets
such as oil under stress.
Analysts tip volatility to linger and said oil prices could test
$45 a barrel support in the near term.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in August traded at $47.16 a barrel at 0134 GMT, down
$0.48 in the Globex electronic session. August Brent crude on
London's ICE Futures exchange fell $0.38 to $48.03 a barrel.
Oil prices plunged by nearly 7% at one point Friday as the U.K.
upended most expectations by becoming the first country to vote to
leave the EU. The move triggered a selling spree across the global
markets and sent the U.S. dollar soaring. An appreciating greenback
makes oil more expensive for traders using different
currencies.
Though oil prices have pared some losses since Friday, they will
continue to face more headwinds before stabilizing, analysts
said.
"The market did get ahead of itself and complacency was the pain
trade. Buckle up for Monday, volatility is not ready to fade yet,"
ANZ Research cautioned in a morning note.
The vote to leave the U.K., known as "Brexit", will likely have
minor impact on the global oil supply and demand since the U.K.
accounts for less than 2% of the world's oil demand, but the move
has shaken investors confidence in the region's economic growth.
One fear is that it could spark a chain reaction with other EU
members following U.K.'s footsteps.
Moreover, the vote raises questions over oil production in
Scotland's North Sea as Scottish leaders are suggesting another
secession vote to break away from the U.K. The U.K. produces nearly
a million barrels of oil a day, or about 1% of global output.
A potential slowdown in investment could also mean less output,
which would help narrow the supply and demand gap in oil.
"One a positive note, the vote could delay producers' investment
plans, making them hesitant to bring back investment even with a
bounce in prices, especially in the U.S.," said Morgan Stanley in a
note.
The bank said the most crucial factors in oil remains--oil
supply, China demand, and macro outlook. On Friday, the number of
active rigs digging for oil in the U.S. fell for the first time in
four weeks, according to data by industry group Baker Hughes.
"The thing is people will continue to drive their cars and they
will still need fuel during the winters," said Aaron Lynch, an
analyst at OptionsXpress.
"Soon or later, the fundamentals will take over to push prices
higher," he added.
Nymex reformulated gasoline blendstock for July--the benchmark
gasoline contract--fell 28 points to $1.5222 a gallon, while July
diesel traded at $1.4523, 30 points lower.
ICE gasoil for July changed hands at $430.00 a metric ton, down
$5.00 from Friday's settlement.
Nicole Friedman contributed to this article.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
June 26, 2016 23:03 ET (03:03 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.