By Nicole Friedman
NEW YORK -- Oil prices dropped Friday but erased some overnight
losses after the U.K.'s vote to leave the European Union triggered
a selloff across markets.
U.S. oil prices settled down $2.47, or 4.9%, at $47.64 a barrel
on the New York Mercantile Exchange, after falling as low as $46.70
a barrel in overnight trading. Brent, the global benchmark, had
traded as low as $47.54 a barrel but settled down $2.50, or 4.9%,
at $48.41 a barrel on ICE Futures Europe.
Both contracts posted their biggest one-day percentage declines
since February.
Nearly 52% of the U.K. electorate voted Thursday in favor of
leaving the EU, shocking investors and traders around the world who
had expected the opposite result. Global stocks tumbled and the
British pound sank against the dollar as investors moved money into
safe-haven assets like gold.
Oil prices have wavered in recent sessions as uncertainty about
the referendum's results roiled markets around the world. After
dropping to 13-year lows in the first quarter of 2016, oil prices
have rallied more than 80% on expectations that the global glut of
crude is shrinking. But some analysts say the market remains
oversupplied and warn that prices could fall in the coming
months.
The WSJ Dollar Index, which tracks the greenback against a
basket of other currencies, recently rose 1.7%. A stronger dollar
can weigh on dollar-priced raw materials like oil by making them
more expensive to foreign buyers.
"Everything is trading off: risk assets across the board, from
stocks to energy to other commodities," said Katrina Lamb, head of
investment strategy at MV Financial Group in Bethesda, Md., which
manages about $500 million in assets.
"But it's not meltdown territory," she added.
Oil traders said they had not taken large positions ahead of the
vote due to uncertainty, but the outcome still came as a
surprise.
"The markets are almost always right, and they were basically
betting that there wasn't going to be a Brexit," said Mark
Waggoner, president of commodity brokerage Excel Futures in Bend,
Ore. "I wish I'd come in early today -- the phone's been ringing
off the hook" with customers asking for advice or canceling
orders.
Some market watchers warned that prices could fall further as
investors who had long positions, or bets on higher oil prices,
close out their wagers.
The referendum result could weaken global oil demand by weighing
on European economic growth, said Will Riley, co-portfolio manager
at Guinness Atkinson Asset Management Inc., which oversees about
$300 million in energy-equity investments.
But Europe isn't the main driver for oil demand, he said, and
Guinness Atkinson still expects international oil consumption to
rise strongly this year. Relatively low oil prices have encouraged
new demand and emerging economies in Asia continue to grow.
The vote also increases uncertainty for oil production in
Scotland's North Sea, as the country's First Minister said the
Scottish National Party would seek to hold a new referendum on
secession if Britain chose to leave the EU. The U.K. produces
nearly a million barrels of oil a day, or about 1% of global
output.
Others said the moves would be more transient, as the U.K. vote
has little immediate effect on supply and demand in the global
crude market. The U.K. accounts for less than 2% of the world's oil
demand.
"The same people that were driving cars yesterday are driving
the cars tomorrow," said Danilo Onorino, portfolio manager at Dogma
Capital SA in Switzerland. "There is no chance whatsoever that the
supply balance for oil will change because of Brexit."
Also on Friday, oil-field-services company Baker Hughes Inc.
said that the number of rigs drilling for oil in the U.S. fell last
week for the first time in four weeks, but the rig count still rose
in shale oil basins in Texas and North Dakota. The rising number of
oil rigs in recent weeks fueled concerns that oil prices around $50
a barrel could encourage U.S. producers to invest in new production
and flood the still-oversupplied market with crude.
The rig count in recent weeks "gives a clear signal to the
market that $50-$55 is a soft ceiling," said Warren Patterson,
commodity strategist at ING Bank in Amsterdam. "We're still fairly
negative toward oil."
"There are some signs that U.S. producers are stabilizing
production," said Lisa Kopp, senior vice president at U.S. Bank
Wealth Management, which oversees $133 billion in assets. "That's
hindering the move toward the ultimate supply-and-demand
rebalance."
Gasoline futures settled down 7.85 cents, or 4.9%, at $1.5250 a
gallon. Diesel futures fell 6.53 cents, or 4.3%, to $1.4553 a
gallon.
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
June 24, 2016 15:47 ET (19:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.