Oil extends drop to trade near US$47 as Brexit turmoil continues

[HONG KONG] Oil extended losses to trade near US$47 a barrel as the UK voted to leave the European Union, triggering a global flight from risky assets.

Futures lost as much as 1.5 per cent in New York after slumping 4.9 per cent Friday, the biggest drop in four months. The turmoil in financial markets continued Monday with the pound extending its selloff, while demand for haven assets including gold helped drive the precious metal higher.

Oil prices may plunge further if the shock of Britain's vote to exit the EU is combined with a boost in output, Russian energy minister Alexander Novak said.

Oil capped a second weekly drop on Friday as prices slid with industrial metals and European equities after the UK voted to quit the EU following more than four decades of membership.

Crude in New York has still risen about 80 per cent higher from a 12-year low in February as supply disruptions from Nigeria to Canada and falling US production trim a global surplus.

"Everything is caught up in Brexit," Evan Lucas, a market strategist at IG Ltd in Melbourne, said by phone.

"The oil fundamentals for the moment will be put to one side as markets try to figure out exactly how this will all work."

West Texas Intermediate for August delivery slid as much as 72 US cents to US$46.92 a barrel on the New York Mercantile Exchange and was at US$47.36 at 10:57 am Hong Kong time.

The contract fell US$2.47 to US$47.64 on Friday. Total volume traded was 11 per cent above the 100-day average.

'Serious' Drop

Brent for August settlement fell as much as 63 US cents, or 1.3 per cent, to US$47.78 a barrel on the London-based ICE Futures Europe exchange. The contract dropped US$2.50, or 4.9 per cent, to US$48.41 on Friday. The global benchmark crude traded at a premium of 90 US cents to WTI.

Returning production in Canada and Nigeria, which has been disrupted by wildfires and rebel attacks, combined with the Brexit result could mean "the drop in prices in the short-term may be serious," Russia's Mr Novak said in an e-mailed statement. If supply isn't restored, a return to fundamentals is likely fairly quickly, he said.

BLOOMBERG