Fears of Brexit Bring A Drop In Oil Prices

Oil prices fell this morning for the fifth consecutive session.

The drop is due to:

• Overshadowed by the fact that the IEA said the oil markets are now in balance
• Overwhelming concern that Britain will leave the European Union
• This is the 4th straight week that U.S. crude inventories have declined

At 11:32am EST, U.S. crude futures were at $48.29 a barrel, a drop of $.20.

Brent was at $49.42 a barrel, a drop of $.51.

The Energy Information Administration reported that U.S. commercial crude inventories were down 933,000 barrels through the week of June 10th, which puts them at 541.5 million barrels.

However, it was reported by the American Petroleum Institute that crude inventories rose by 1.2 million barrels when analysts had predicted a decrease of 2.3 million barrels.

The EIA said that distillate fuel inventories spiked 800,000 barrels, and motor gasoline stocks plummeted 2.6 million barrels.

After a spike last week, U.S. oil production continued to fall by 29,000 barrels a day. 

Investors are fearful that a recession that could undermine oil demand will be imminent if Britain votes to leave the EU.

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Petromatrix strategist Olivier Jakob elaborated, “In a sense, it is putting some market participants on the sidelines and contributing to the cap on crude oil prices. Are you going to be buying aggressively ahead of that? Maybe not, because you don't know what is going to happen, but there is no evidence of very strong selling on the back of it either.”

The oil market has experienced some balancing coming from a high demand and production distributions, but it is likely that a surplus will happen going into early 2017.

Chief market analyst at CMC Markets in Sydney, Ric Spooner, said “The broad picture at the moment is that oil is being swept up in a broad risk-off move associated with Brexit primarily.” 

Goldman Sachs believes that oil will stay around its recent prices, and said that in order for crude to go into a deficit later on in the year, it would have to be at $45-$50 a barrel.