Oil Rallies as Fears Over Brexit Cool Down

Published: 20 June, 2016 15:22

Oil rallied on Monday (June 20), lifted by a wave of investor confidence and a weaker dollar after polls showed a diminishing chance that Britain may vote to leave the European Union later this week.

August Brent crude futures were up 85 cents at $50.02 a barrel by 5.55am New York time, set for a gain of 6 per cent in two trading days. NYMEX crude for July delivery, which expires on Tuesday (June 21), was up 80 cents at $48.78 a barrel.

Campaigning for Britain’s vote on EU membership resumed on Sunday (June 19) after a three-day hiatus prompted by the brutal killing of Batley & Spen MP Jo Cox of  the ‘Remain’ camp.

Remain recovers momentum

Three opinion polls ahead of the vote on Thursday, June 23  showed the ‘Remain’ camp recovering some momentum, although the overall picture remained one of an evenly split electorate.

Investment safe havens such as gold, the US dollar, German bonds and the Swiss franc came under pressure, while oil looked set for its largest two-day rise in a month and the likes of copper and equities rallied.

“For oil as a risky asset, what we’ve seen are intraday gyrations that are coming from the spillover effects of ‘risk-on/risk-off’ moves that follow the poll numbers,” BNP Paribas global head of commodity strategy Harry Tchilinguirian said.

The pound climbed 1.6 percent to $1.4589, extending a recovery from last Thursday’s more than two-month trough of $1.4013.

‘Nervous and skittish week trading’

“With Brexit dominating the market headlines, it might be moves in the US dollar that drive the oil market at least until we get that out of the way. “It’s likely to be a nervous and skittish week’s trading,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

Oil prices continued to recover despite data showing US energy firms adding oil rigs for a third week in a row, suggesting higher production to come. Oil services firm Baker Hughes reported nine rig additions in the week to June 17.

Aside from Brexit concerns, the market is likely to be caught in a range as any gains would likely be limited by the return of more shale drillers in the United States, CMC’s McCarthy said.

“Capping market gains at the moment is the potential for those very agile U.S. producers to jump back into production should we see any further substantial rises,” he said.

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