Oil futures tip lower on angst over demand
London (July 1) Oil prices edged lower in volatile trade Friday amid continued uncertainty about the impact of the Brexit referendum on crude demand.
Brent crude LCOU6, -0.22% the global oil benchmark, fell 0.3% to $49.56 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLQ6, -0.21% were trading down 0.3% at $48.19 a barrel.
Analysts at Barclays said that uncertainty in financial markets created by the U.K.’s vote to leave the European Union will be a drag for oil demand, which has already been weakening this year.
“The U.K. Leave vote has added another nail to the coffin for global oil demand in 2016,” the bank said in a report on Friday. “The path of oil prices is likely to track the political uncertainty in the months ahead.”
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Barclays has revised its demand growth estimate for 2016 to 1.1 million barrels a day from 1.2 million, while for next year it cut its forecast to 1.2 million barrels a day from 1.3 million.
Putting a floor under prices was a modest weakening in the U.S. dollar, which had rallied sharply in the wake of the Brexit vote. A weaker dollar often leads to higher oil prices because it makes the dollar-billed commodity cheaper in other currencies. The WSJ Dollar Index BUXX, -0.25% fell 0.2% on Friday.
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Some analysts said prices could get a further lift in the months ahead if oil output continues to decline in places like the U.S. Production there fell 220,000 barrels a day in April, which was the largest decline since September 2008, according to Barclays. Meanwhile, the U.S. Energy Information Administration reported a deep decline in U.S. oil inventories last week.
“We believe that the fundamentals of the oil market remain favorable for continued price recovery, and that global inventories will begin [to decline in the third quarter],” said Jason Gammel, analyst at Jefferies.
Later in the day, traders will also look to the latest U.S. oil rig count, which is as a rough proxy for activity in the industry. Last week, Baker Hughes Inc., which tracks the data, said the overall rig count fell last week for the first time in four weeks, though it did rise in shale oil basins in Texas and North Dakota.
As oil prices have bounced off decade-lows reached earlier this year and brought it up to levels that make drilling economical for some firms, analysts say that U.S. production declines might slow. This would in turn threaten the price recovery, analysts say.
Nymex reformulated gasoline blendstock for August RBQ6, -1.35% —the benchmark gasoline contract—dropped 2% to $1.47 a gallon.