Oil prices fall again as Brexit weighs

June 28, 2016 | 12:00

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NEW YORK: Oil prices fell again on Monday (Jun 27) as worries about Britain's vote to quit the European Union continued to churn through financial markets.

File photo of a motorist filling petrol at a service station. (Photo: AFP/Amer Hilabi)

Analysts said Britain's surprise vote on Thursday to leave the EU could lead to lower economic growth, especially in Europe. The outcome also boosted the dollar at the expense of other currencies, further depressing demand for oil and other commodities denominated in the US currency.

"As the US dollar flexes its muscles once again and broader markets adopt a decidedly risk-off stance, oil prices are charging lower amid unknowns surrounding last week's Brexit decision," said Matt Smith of ClipperData.

US benchmark West Texas Intermediate for August delivery fell US$1.31 to US$46.33 a barrel on the New York Mercantile Exchange. Brent North Sea oil for August delivery fell US$1.25 to US$47.16 a barrel in London.

Some analysts predicted oil would weaken further, with Citi Futures analyst Tim Evans eyeing US$35 a barrel oil, in part due to signs that some suspended Nigerian oil production is returning to markets.

But some analysts predicted that oil prices could be relatively stable after Brexit, because any real-world economic slowdown due Brexit would not be seen quickly.

The Brexit vote "will likely have a much larger impact on future expectations than on current fundamentals which spot assets like commodities are driven by," said Goldman Sachs.

Oil is "near-term fundamentally balanced and the leave vote is unlikely to change that," Goldman said.

"We believe that oil market fundamentals will eventually reassert themselves," said JBC Energy analysts in a client note. "However, this is contingent on a reduction in uncertainty, and at the moment, further political developments remain highly unclear."

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