Oil Slides Lower Tuesday
NEW YORK (DTN) -- New York Mercantile Exchange oil futures slid lower early Tuesday as part of a global market selloff on risk-aversion amid concern over a potential economic slowdown in the wake of Britain's recent vote to leave the European Union. A slowdown in growth would diminish demand for crude oil and products, said analysts.
"Oil markets are not completely immune to the effects of the United Kingdom's referendum," said Barclays Capital in a report issued Monday. "The deterioration in the global economic outlook, financial market uncertainty and ripple effects on key areas of oil demand growth are likely to exacerbate already-lackluster industrial demand growth trends."
The selling in oil futures was also linked to profit taking after last week's pre-holiday rally, but militant attacks on Nigerian oil facilities this past weekend limited the downside for oil prices.
At last look, NYMEX August West Texas Intermediate crude oil futures dropped $1.53 or 3.1% to $47.46 bbl, off a near-one week low at $47.36. September Brent on the IntercontinentalExchange fell $1.42 to $48.68 bbl, off a near one-week spot low of $48.61.
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In products trade, NYMEX August ULSD futures toppled 5.11cts or 3.4% to $1.4604 gallon, off a near-one week low of $1.4582. The August RBOB futures contract tumbled 4.63cts or 3.0% to $1.4672 gallon, off a better than two-week spot low of $1.4588.
On Wall Street, U.S. equity indices were lower on risk-off trade as traders returned to work after a three-day holiday weekend in the United States, with the dollar, bond yields and other commodities also falling.
The Dow Jones Industrial Average fell 90 points, snapping a four-day rally amid talk of risks resulting from the Brexit. U.S. markets were closed for normal trade on Monday in observance of the Independence Day holiday.
The sterling pound fell to a fresh 31-year low against the dollar this morning amid shaken investor confidence. Britain has been downgraded by Standard & Poor's and its purchasing managers' index fell to a 3-1/2 year low, said London-based research firm Markit.
Bank of England Governor Mark Carney this morning said Britain faces a "period of economic uncertainty and economic adjustment," and credit has begun to tighten in the aftermath of the referendum results, so the central bank will try to provide liquidity.
Highlighting the impact of Brexit on the market, the Barclays report said, "The demand effects should be felt most in Europe and, to a lesser extent, Asia. Supply-side adjustments and divergent demand trends for the Far East and the Atlantic Basin should favor further narrowing in the Brent-Dubai spread."
Looking ahead, U.S. non-farm payroll report for June is due out Friday.
NYMEX oil futures have been supported this year by signs that a supply glut that has nearly halved oil prices in the last two years is easing and also from unplanned outages from Canada to Nigeria. Canadian oil sands output that were cut by wildfires in May is returning to normal.
However, a militant group that has been carrying out attacks on Nigerian oil pipelines claimed responsibility on Sunday for five new attacks. The group also disavowed recent reports of a deal with the government to stop attacking the pipelines in the Niger Delta region.
George Orwel can be reached at george.orwel@dtn.com
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