Early polls show that the UK Brexit vote that is happening now is favoring the stay camp by about 2%.
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Brent crude fell $1.90 at $49.01 per barrel during early sessions, and U.S. crude declined $1.90 at $48.21 per barrel.
Any fears that the United Kingdom decision could undermine global economic growth, fanning the flames of contagion, will hurt oil prices on the assumption that a downturn hurts demand, S&P Global Market Intelligence analyst Stewart Glickman said in a research note. “This US$70 price deck should support sufficient long-term USA oil supply growth to offset slowly rising global oil demand and falling non-U.S. oil supply”.
Brent’s August front-month contract LCOc1 was up 40 cents at $50.28 a barrel at 0217 GMT. Brexit is a different type of instability, creating uncertainty about the fifth-largest economy in the world, and the European Union as a whole. Domestic production fell 39,000 barrels a day last week to 8.7 million barrels a day – about 1 million barrels a day below a peak of 9.7 million barrels a day in April 2015, the U.S. Energy Information Administration reported this week.
Crude oil prices declined sharply on Wednesday, amid a smaller than expected decline in USA crude stockpiles.
Bernard Aw, an analyst with IG Markets in Singapore, said the stronger dollar, which surged to a three-decade high against the pound, made dollar-denominated crude more expensive for holders of other units.
The expansion of crude oil storage capacity helped to accommodate the growth in USA crude oil inventories, which surpassed 500 million barrels at the end of January 2016.
Britain’s referendum on whether it will leave the European Union has investors braced for more market swings over currency gyrations likely to come with the vote.
Yet, we also saw USA oil production fall again last week.
“The reason we’re up today is because we’re less concerned about the Brexit”, said Phil Flynn of Price Futures Group. UBS AG said traders will soon focus again on the re-balancing of the crude market as a global surplus fades, while weighing any lasting impact from the U.K.’s decision on the world economy and oil demand.
The large and continued contango structure prompted many market participants to place more crude oil into storage. A weaker dollar makes greenback-denominated oil more attractive to users of other currencies.
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“This will curb oil consumption in countries that do not use the US dollar”, DeHaan said.
