Oil Gains After Brexit Rout as Policy Makers Try to Curb Fallout

Can Oil Demand Withstand Brexit's Impact?
  • Stocks rise while dollar, gold fall on renewed risk appetite
  • U.S. crude supply seen falling 2.5 million barrels in EIA data

Oil rose, paring the biggest two-day loss since February amid speculation policy makers will take steps to limit the economic fallout from Britain’s shock vote to leave the European Union.

Futures climbed 3.3 percent in New York after slumping 7.5 percent over the previous two sessions as the U.K.’s referendum spurred volatility in global markets. European stocks and the pound rose for the first time since the vote as the dollar declined amid renewed appetite for risk. U.S. crude supplies probably fell by 2.5 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.

"We’re catching our breath here," said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. "A lot of the fears about the impact of the Brexit vote on the global economy have been priced in. There’s a long timeline before this process is complete and a hope that cooler heads will prevail."

Oil has climbed about 80 percent from the lowest level in 12 years in February as global supply disruptions and falling output in the U.S. ease a worldwide surplus. Even as the Brexit vote raises the prospect of a slowdown in the U.K. economy that could spread to other parts of the world, the oil market itself is seen moving toward a demand and supply balance.

West Texas Intermediate for August delivery rose $1.52 to close at $47.85 a barrel on the New York Mercantile Exchange. Futures dropped Monday to the lowest close since June 16. Total volume traded Tuesday was 14 percent below the 100-day average at 4:31 a.m.

U.S. Stockpiles

Futures rose from the settlement after the industry-funded American Petroleum Institute was said to report U.S. crude supplies fell 3.86 million barrels last week. WTI traded at $48.03 at 4:44 p.m in New York.

Brent for August settlement climbed $1.42, or 3 percent, to settle at $48.58 a barrel on the London-based ICE Futures Europe exchange. The contract fell to $47.16 on Monday, the lowest close since May 10. The global benchmark crude ended the session at a 73-cent premium to WTI.

For a story on what the drop in the pound means for commodities, click here.

Investors moved back into the equity and energy markets amid optimism that policy makers are committed to limit the fallout from the U.K.’s exit. The Bank of England and European Central Bank pledged to increase liquidity. 

Energy companies accounted for seven of the ten biggest gainers on the Standard & Poor’s 500 Index. The S&P 500 Oil & Gas Exploration and Production Index rose 4.8 percent, the biggest gain since April 12.

Big Bump

"The jury is still out what the long-term impact of Brexit will be," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "We’ve had a big bump down on the vote, but that’s yesterday’s news at this point."

While U.S. crude stockpiles dropped to 530.6 million barrels in the week ended June 17, supplies still remain more than 100 million barrels above the five-year average, according to data from the EIA. Production has slipped to 8.7 million barrels a day, the lowest level since September 2014.

Oil-market news:

  • Norway’s Industri Energi union warned that 500 members covered by drilling operations agreement and employed at Statoil installations may walk out, according to a statement on the union’s website. The mediation deadline is midnight July 1.
  • Norway’s Safe Union warns that 156 members will go on strike should mediation fail, affecting Esso and ESS workers.
  • Venezuela’s oil output is set to slide further this year as contractors scale back drilling after the cash-strapped country fell more than $1 billion behind in payments for their services.
  • Qatar Petroleum chose Total SA to operate the country’s biggest oil field, replacing AP Moeller-Maersk A/S.
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