Oil price resumes downturn as Brexit weighs

[LONDON] Deep uncertainty following Britain's vote to quit the EU pushed the oil price lower on Monday, but bargain-hunting investors offered some support to the market.

Oil prices had slumped more than five percent on Friday following the British referendum.

They slid again as trading opened in Asia on Monday, but then staged a rebound later as some investors felt the initial negative reaction may have been overdone.

"Clearly many market participants view current oil prices as an attractive entry level after their five percent decline on Friday," analysts at Commerzbank said.

"Fundamentally, the oil price is well-supported," they said.

But the rebound was short-lived as attention turned to a rising dollar against both the pound and the euro, and expectations that a stronger greenback will weigh on demand from customers with weaker currencies.

"The strength of the dollar and the weakness in the euro and the pound are putting some pressure," on the oil price, said Carl Larry at Frost & Sullivan.

At around 1450 GMT, Brent crude was down $1.06 at $47.35, while US benchmark West Texas Intermediate was down $1.14 at $47.58.

Both contracts have tumbled around 10 percent from their 2016 highs touched earlier this month.

There was also concern that the fallout from the Brexit referendum will weaken global economic growth.

"A chill has come over the market due to the Brexit vote because it brings with it the prospect of slower economic growth and lower oil demand," John Kilduff, partner at Again Capital LLC, told Bloomberg News.

But traders also said it was unlikely that oil would continue its downward trend for long, so long as there were signs that Brexit uncertainty would be resolved.

"We believe that oil market fundamentals will eventually reassert themselves," said JBC Energy analysts. "However, this is contingent on a reduction in uncertainty, and at the moment, further political developments remain highly unclear," they said.

British finance minister George Osborne said Monday that Brexit was likely to lead to further volatility but the British economy is "as strong as could be".

"While the oil market fundamentals will ensure no major drop in the price of crude... the oil markets are likely to remain under pressure until the volatility in the financial markets comes down," said EY Services oil and gas analyst Sanjeev Gupta.

"Everything is caught up in Brexit," Evan Lucas, a market strategist at IG Ltd in Melbourne told Bloomberg News.

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

AFP