Oil prices march higher as supply hopes offset fading Brexit fears

London (Jun 29)  Oil prices rose Wednesday as prospects of slower production and supply declines around the world offset residual shocks from the Brexit vote.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in August CLQ6, +0.69%  traded at $48.43 a barrel, up 1.2%, or 56 cents. August Brent crude on London’s ICE Futures exchange LCOQ6, +0.70%  rose 51 cents, or 1%, to $49.07 a barrel.

Oil prices have rallied since the first quarter due to unplanned supply outages, such as wildfires in Canada, strikes in Kuwait and France, economic woes in Venezuela, and political upheavals in Nigeria and Libya. These events, coupled with strong demand from China and India, have strengthened views that the global oil markets are pivoting to a deficit.

Oil production in Norway, one of Europe’s biggest oil producers, might be constrained as up to 7,500 oil and gas workers are threatening to stage a strike if a new wage deal is not agreed before midnight on July 1.

Norway produced roughly 1.96 million barrels a day in May, or about 2.1% of the world’s oil output, according to the International Energy Agency.

Traders are also awaiting weekly inventory data due Wednesday from the U.S. Energy Information Administration. Analysts surveyed by The Wall Street Journal expect that U.S. crude supplies fell by 2 million barrels in the week ended June 24, while stockpiles of gasoline and distillates, including heating oil and diesel fuel, stood flat.

The American Petroleum Institute, an industry group, said late Tuesday it estimated a 3.9-million-barrel decrease in crude supplies, a 400,000-barrel decrease in gasoline stocks and an 800,000-barrel decline in distillate inventories, according to market participants.

The rebound in oil prices came quicker than some market analysts had expected. In the wake of Britain’s decision to leave the European Union, oil fell more than 6% at one point and some had predicted oil to drop to the $45-a-barrel range.

“Once again, oil led the sector as the shock of the U.K. voting to leave the EU wore off,” said ANZ Research, noting that market sentiment got a lift after several world leaders, including Chinese Premier Li Keqiang, said that the vote would not have a detrimental impact on their nations’ economies.

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A weaker U.S. greenback is also pushing oil higher. The WSJ Dollar Index BUXX, -0.32%  showed the dollar down 0.22% at 86.95.

“While the firmer equities and weaker dollar may have encouraged some short-term buying in crude oil, [the rise in prices] may not represent a full return to a reliably more confident market sentiment,” said Tim Evans, a Citi Futures analyst.

Nymex reformulated gasoline blendstock for July RBN6, +0.08%  — the benchmark gasoline contract — rose 0.38% to $1.52 a gallon.

Source: MarketWatch