Oil prices drop further on supply as Britain’s EU exit is predicted

Oil Barrels with Red Arrow isolated on white background. 3D render

Oil prices tumbled again Wednesday as traders grew concerned about the chances of Britain leaving the European Union (EU) while news of a surprise jump in US stockpiles followed a warning of an extended period of global oversupply.

After almost doubling from February to touch multi-month highs last week, the commodity tumbled along with equity markets on worries about the global outlook and Britain’s EU future.

At about 0430 GMT, the US benchmark West Texas Intermediate (WTI) fell 69 cents, or 1.42 per cent, to trade at $47.80, a one-month low. Brent fell 71 cents, or 1.42 per cent, to $49.12, its lowest in three weeks.

WTI has fallen 7.5 per cent from last week’s 11-month peak and Brent is down 5.5 per cent from its eight-month high.

The selling pressure built up Tuesday when the International Energy Agency said in its monthly report that it expects global crude demand to grow this year and next but that huge inventories would cap future price gains.

“There is an enormous inventory overhang to clear,” the IEA said. “This is likely to dampen prospects of a significant increase in oil prices.”

That was followed by news that data from US industrial group the American Petroleum Institute show US inventories rose 1.2 million barrels last week, confounding forecasts of a fall.

Traders are awaiting the release of official US stockpiles figures later Wednesday, while the Federal Reserve is also due to conclude a two-day meeting.

The Bank of Japan ended its own policy gathering on Thursday, which will be closely followed to see if it introduces fresh stimulus measures.

Markets around the world are on edge over authorities’ ability to navigate  a global slowdown, which is being exacerbated by a growing sense that Britain  will vote to leave the EU. More than $2 trillion has been slashed from global equities in the past week.

With just over a week to the June 23 referendum, several polls have put the “Leave” campaign ahead, raising the prospect of one of its big three economies leaving the economic bloc — fuelling warnings of a rout across international markets.

“There is uncertainty in the oil market and many traders are searching out for safe heavens,” said Oil and Gas analyst Peter Lee, with BMI Research.