Crude And British Pound Plunge As Brexit Fears Resurface

by Ship & Bunker News Team
Wednesday July 6, 2016

The United Kingdom's decision to leave the European Union is being cited as one of several factors contributing to oil prices tumbling nearly five percent on Tuesday, with Brent futures settling down $2.14 at $47.96 per barrel and U.S. crude falling $2.39 to end at $46.60.

Brexit initially sent shock waves through the global financial community last month, but as prices slowly escalated from lows of $46.94 and $45.83 (for Brent and U.S. crude respectively), analysts determined that the vote to leave the EU would not have a long-lasting negative effect on either price or demand.

While it's impossible to determine if Tuesday's price plummet is merely a lone blip on the radar or something more significant, the British pound also nose-dived to a 31 year low, compounding Bank of England governor Mark Carney's warning that his nation has "entered a period of uncertainty and significant economic adjustment."

Still, the economists who downplayed the longevity of Brexit's impact also stated that many other factors – first and foremost being persistent oversupply coupled with poor economic growth in China – would cause market fragility in the foreseeable future, and this seems to be proving true, with traders telling CNBC that Tuesday's oil prices "were pressured by data from Genscape showing a build of 230,025 barrels at the Oklahoma storage hub for U.S. crude futures."

Olivier Jakob, oil analyst at Petromatrix, noted that weak refined products were pressuring crude, and that "Asia has been relatively weak and China is not providing much support.

"Without the support of the products and with a structure in crude oil that is weakening, it is difficult to think that crude can break away to the upside."

Barclays in a report observed that "The deterioration in the global economic outlook, financial market uncertainty, and ripple effects on key areas of oil demand growth are likely to exacerbate already-lackluster industrial demand growth trends."

Last month, Dominick Chirichella, senior partner at the Energy Management Institute, said although Brexit was a historic event, "There is no indication that the global financial markets are anywhere near a meltdown as we saw in 2008; the UK will not collapse and the EU will not collapse anytime soon."