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Oil trades near US$48 a barrel as Brexit spurs market volatility

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Oil traded near US$48 a barrel as market volatility continued after the UK last week voted to leave the European Union.

[HONG KONG] Oil traded near US$48 a barrel as market volatility continued after the UK last week voted to leave the European Union.

Futures pared a loss of as much as 1.5 per cent to trade little changed 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 drove gold 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. Nigerian output may return to about 2.2 million barrels a day next month after the repair of a pipeline as talks with militants continue, State Minister for Petroleum Resources Emmanuel Ibe Kachikwu said in Bloomberg television interview in Beijing.

"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 (WTI) for August delivery was at US$47.56 a barrel on the New York Mercantile Exchange, down 8 cents, at 2.03 pm. Hong Kong time after losing as much as 72 cents earlier. The contract fell US$2.47 to US$47.64 on Friday. Total volume traded was about 6 per cent above the 100-day average.

'Serious' Drop

Brent for August settlement was up 10 cents at US$48.51 a barrel on the London-based ICE Futures Europe exchange after falling as much as 1.3 per cent earlier. 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 94 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.