Brexit Vote Puts Market on Tenterhooks

Oil prices went up during Asian trading on June 23, thereby disregarding the less than expected US stockpile decline. The markets have been nervous on the issue of the UK Brexit vote. Oil prices earlier dropped after the American Government reported a smaller inventory drawdown compared to what was expected. Trading continues to be choppy and it will presumably stay that way until the Brexit vote is over. It is seen, however, that the markets have majorly priced themselves in “Remain” vote.

Contract for Brent’s August went up by 40 cents to touch $50.28 per barrel. It closed down at 74 cents- a drop of 1.5 percent, to reach the $49.88 per barrel price on June 22. US oil prices went up to $49.56 per barrel, a rise of 43 cents.

It is estimated that after the Brexit vote, the oil market will concentrate on the fundamentals. Attention will be turned towards the probable supply distractions which have pushed up prices in 2016. According to Tony Nunan of Tokyo headquartered Mitsubishi Corp, Venezuela with its big oil reserves faces a worsening crisis. Nunan says that the country could be next in the supply concerns. He said that the Brexit vote is smothering prices and post vote, the prices will go up. Of course, this will only be possible if the UK votes to stay in the EU.

The US Energy Information Administration said that there was a drop in the US crude inventories during the second week of June, but it was less than previously expected. The product inventories also went up a little. Inventories of crude went down 917,000 barrels in week ending June 17. This figure can be contrasted with expectation of a 1.7 million barrels decrease. For crude inventories, this was a drawdown for fifth consecutive week.

Gasoline demand in the US over the last four weeks went up 3.9 percent Y-O-Y. The motor fuel stocks, however, increased by 627,000 barrels earlier in the month. The stock of distillates went up by 151,000 barrels. If one goes by Jim Ritterbusch of Chicago-headquartered Ritterbusch & Associates, an oil markets consultancy, then the industry perception of choppy trades within the $5 to $6 range per the nearby Brent and WTI continues to be unchanged. His advise to investors is to keep a neutral position until referendum. The British Pound went up on a high of six months compared to the dollar on June 23.

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