Oil Open Lower in Early Trade
NEW YORK (DTN) -- New York Mercantile Exchange oil futures opened lower Monday morning, pressured by a strong U.S. dollar as traders absorbed last week's historic vote by the United Kingdom to quit the European Union.
The U.S. dollar gave up some gains overnight but remained near a three-month high posted on Friday versus major world currencies including the euro and the pound sterling.
The Brexit referendum is being interpreted by many as a vote against globalization that theoretically boosts the odds of a global recession, analysts say, and believe is necessary is a coordinated policy response to counteract that elevated risk environment.
"The hangover continues from the Brexit vote and global markets have a headache," said analyst Phil Flynn at Price Futures. "While crude is trying to shake off the Brexit shock, it is having a hard time even though the supply and demand fundamentals are much tighter right now than almost anyone could have predicted."
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At 9:00 AM ET, NYMEX August West Texas Intermediate crude oil futures were down $1.08 or 2.3% at $46.56 bbl, near a 10-day spot low of $46.50. August Brent futures on the IntercontinentalExchange lost $1.03 or 2.1% to a $47.38 bbl open, off a $47.35 10-day spot low.
In products trade, NYMEX July ULSD futures tumbled 2.77cts or 2.0% to $1.4276 gallon at the open, off a 10-day spot low at $1.4271. The July RBOB futures tumbled by 2.80cts or 1.8% to $1.4970 gallon, near a 10-day low of $1.4964.
On Wall Street, major U.S. stock indices plummeted on investor flight to safety with the Dow Jones Industrial Average falling about 150 points this morning after a 600-point loss on Friday on risk-off trade. The main stock index in London FTSE100 was down 1.9%. Bank shares have lost an estimated 24% since the British referendum.
In currency trade, the British pound sterling fell 3% to a fresh 31-year low this after losing 8% on Friday. The U.S. dollar remains near an a three-month high versus six major currencies.
Markets have been tumbling since the June 23 referendum and analysts said although the global economy will take a knock-on effect from the Brexit the impact on demand for energy will likely be limited.
Uncertainty is expected to continue for months because the UK or EU are yet to trigger Article 50 of the EU treaty to speed up a separation time table. It could take two years to complete the negotiations between Britain and the EU.
Risk-off trade is expected to continue as the fallout of Brexit continues to be felt throughout Europe and beyond. UK Prime Minister George Osborne tried to calm markets this morning, saying that while Brexit will lead to further volatility in the markets, the world's fifth largest economy can still cope with the challenge ahead.
U.S. Treasury Secretary Jack Lew said the challenge is to provide stability and promote growth. Italy said it will provided $45 billion to shore up its financial system.
Oil demand and supply fundamentals remain supportive, however. The number of rigs drilling for oil and gas in the United States fell by three units to 421 last week, with active oil rig count down seven to 330, according to a Baker Hughes Inc. report for the week-ended June 24. This is the first decline in the rig count in four weeks.
George Orwel can be reached at george.orwel@dtn.com
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