Oil Slips From One-Week High Ahead of Brexit Vote, EIA Report

Brexit Positivity Fuels Oil's Gains From One-Month Low
  • U.S. crude stockpiles likely fell a 5th week: Bloomberg survey
  • Latest polls say vote on U.K.’s EU membership will be close

Oil dropped from the highest close in more than a week as markets awaited U.S. stockpile data, while the U.K. referendum on European Union membership remained too close to call.

Futures slid 1.1 percent in New York after settling at the highest level since June 9 on Monday. U.S. crude inventories likely declined by 1.5 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report is released on Wednesday. Still, U.S. stockpiles remain elevated at more than 100 million barrels above the five-year average. Separate polls showed leads for either side of the U.K. referendum before the vote on Thursday.

“Macro fears are very much in the driver’s seat. A vote to leave will have serious economic repercussions,” Amrita Sen, chief oil economist for Energy Aspects Ltd. in London, said by telephone. “That is the main reason for market jitters.”

Oil has advanced more than 80 percent from the lowest level in 12 years as disruptions from Nigeria to Canada and falling output in the U.S. trimmed a global surplus. Governments and investors around the world are watching the U.K. referendum amid concern that a so-called Brexit would spark turmoil across global markets. U.S. crude futures had gained 6.8 percent in the previous two trading sessions amid growing expectations the country would vote to remain in the EU.

To follow our U.K. referendum live blog, click here.

West Texas Intermediate for July delivery, which expires Tuesday, declined 52 cents to settle at $48.85 a barrel on the New York Mercantile Exchange. Total volume traded was about 20 percent below the 100-day average. The more-active August contract fell by 11 cents to end the session at $49.85 a barrel.

Brent for August settlement declined by 3 cents to settle at $50.62 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of 77 cents to WTI for August.

Market Worries

U.S. crude inventories dropped for a fourth week to 531.5 million barrels through June 10, according to data from the EIA. Drilling activity rose for a third week through Friday, with companies adding nine to boost the total number of U.S. oil rigs to 337, according to data from Baker Hughes Inc.

The market is looking at “whether we will see the rig count rise again and there is some speculation we’ll see a few more oil rigs added,” Randy Ollenberger, an analyst at Bank of Montreal’s BMO Capital Markets unit in Calgary, said by telephone. A $50 oil price level “does represent a ceiling in the short-term because we still can’t accommodate much of an increase in activity levels in the United States."

Federal Reserve Chair Janet Yellen offered a subtle change to her outlook from less than a week ago in testimony Tuesday before the Senate Banking Committee in Washington, saying she and her colleagues were on watch for whether, rather than when, the U.S. economy would show clear signs of improvement.

"This is a market that has more questions than answers right now," Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. "We’re worried about Brexit, we’re worried about Janet Yellen and we’re worried about inventories."

Oil-market news:

  • Nigerian militants say they "don’t remember" any cease-fire pact, according to an unverified Twitter post. Nigeria’s presidency also said they were “not aware” of a cease-fire with militants targeting oil facilities in the Niger Delta region after an earlier report from Lagos-based newspaper ThisDay said that the government had agreed to a 30-day truce with militants.
  • Marathon Oil Corp. will increase drilling activity as prices climb above $50 a barrel, according to Chief Executive Officer Lee Tillman.
  • Saudi Arabia cut crude shipments in April to the lowest level in six months.
  • China increased strategic crude purchases in May, according to Bloomberg calculations based on General Administration of Customs data.
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