Crude Oil Drops to One-Week Low in NY Ahead of Brexit Vote

(Bloomberg) - Crude fell to the lowest level in more than a week as investors anticipated turmoil ahead of the upcoming Brexit vote and the U.S. oil rig count climbed for a second week.

Futures dropped 0.4 percent in New York to settle at the lowest level since June 3 as investors looked ahead to a June 23 referendum that will determine Britain’s membership in the European Union. Oil rose briefly to touch as high as $49.28 a barrel as the dollar retreated during intraday trading. Shale drillers have added 12 oil rigs in the U.S. over the past two weeks in the first consecutive weekly gains since August, according to Baker Hughes Inc. data.

“It’s a little hard for oil to rally when it looks like the rest of the world has fallen apart and that has been the problem,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. “There is no doubt that if the U.K. votes to leave the euro zone, it will create economic turmoil.”

Oil has surged about 86 percent from a 12-year low in February as the global glut is trimmed by unexpected disruptions and a slide in U.S. output, which is under pressure from the Organization of Petroleum Exporting Countries’ policy of pumping without limits. New York crude closed above $51 a barrel on June 8, the highest in more than 10 months, before sliding every day since.

“Prices will be choppy in a range over the next several weeks and months, but near the end of the year we do think that prices will take another leg higher,” Michael Tran, commodity strategist at RBC Capital Markets, said by telephone.

US Rig Count

West Texas Intermediate for July delivery fell 19 cents to settle at $48.88 a barrel on the New York Mercantile Exchange, after dropping to as low as $48.16 during intraday trading. Total volume traded was 13 percent below the 100-day average.

Brent for August settlement dropped 19 cents to end the session at $50.35 on the London-based ICE Futures Europe exchange. The global benchmark crude was trading at an 83-cent premium to WTI for August.

Oil rigs in the U.S. rose by 3 to 328 last week, after 9 were added the week before, although the nation’s output is still well below last year’s peak. The U.S. oil rig count “has proven it still has a pulse,” Nomura Securities International analyst Matthew Johnston wrote in a report. “Land permitting activity is grinding higher and customer inquiries for service equipment are accelerating.”

U.S. shale producers are “trying to ramp up and get going. They’ll continue to come online just in case we do see a surprise and oil goes back up over $50, but I think we’ve set a top,” Phil Streible, senior market strategist at RJO Futures in Chicago, said by telephone.

Oil-market News:

Iran is seeking to boost output by 600,000 to 700,000 barrels a day over five years from fields west of the Karoun River along the Iraqi border, Oil Minister Bijan Namdar Zanganeh said. Nigeria is in talks with the Niger Delta Avengers to end attacks on oil installations, the minister of the state for petroleum resources said in a television broadcast of a cabinet town hall meeting. Nigerian oil militants gave terms for the talks and said they need a “conducive atmosphere” to commit to dialogue. OPEC predicted that the global oil market will be more balanced in the second half of this year as demand rises and rival supplies falter, according to its monthly market report. Cushing, Oklahoma crude inventories dropped by 600,000 barrels in the week ended June 10, according to a forecast from a Bloomberg proprietary model.

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Anne Riley, Carlos Caminada

Copyright 2016 Bloomberg News.

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