International oil benchmark Brent capped below $50 in early Asian trade Tuesday as investors stay risk-averse ahead of a referendum that could end Britain’s membership in the European Union. Prices were also weighed by the prospect of bigger crude stocks in the U.S.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in JulyCLN6, -1.55% traded at $48.39 a barrel, down $0.50, or 1%, in the Globex electronic session.
August Brent crude LCOQ6, -1.41% on London’s ICE Futures exchange fell $0.43, or 0.9%, to $49.92 a barrel.
Shares in Asia were mostly lower on the growing suspense of the June 23 referendum, known as “Brexit”, in which British voters will decide whether their country will remain in the EU. Japan’s Nikkei Stock Average NIK, -1.00% was down 1.4%, Australia’s S&P/ASX 200 XJO, -2.06% was down 2% and Korea’s KospiSEU, -0.36% lost 0.3%.
Moreover, uncertainty before three major central bank monetary policy meetings this week in the U.S., Japan and Britain, will likely weigh on investor sentiment.
“You are already seeing some weakness in the global equities markets because of Brexit. We expect some short-term speculations amid the rising financial uncertainties,” said Alan Oster, chief economist at National Australia Bank.
According to some analysts, in the scenario that Britain leaves the EU, the British pound will likely take a hit and the greenback will appreciate. As oil trading is conducted in dollars, a strong dollar usually bodes badly for those who trade in foreign currencies. The WSJ dollar index BUXX, 0.26% was last up 0.04% at 86.44. But not all analysts think the Brexit hype has much influence over oil prices.
“The Brexit issue is just a noise in the commodity space. It has brought down oil prices but we believe the supply and demand side of the oil market remains the main driver,” said Barnabas Gan, an economist at OCBC.
Oil prices retreated overnight after data provider Genscape Inc. tipped a 525,000-barrel increase in U.S. crude stockpiles in the week ended June 10. Prices have been under pressure since Monday after industry group Baker Hughes reported the number of rigs drilling for oil in the U.S. rose for the second-straight week.
“The worry is that when prices reach $60 a barrel, we will see new investments in shale exploration,” Gan added.
Oil prices have been on a climb in recent months due to multiple supply outages across the globe. Continuous production declines in the U.S. is also keep the uptrend largely steady.
According to the Organization of the Petroleum Exporting Countries, non-OPEC production will fall by 740,000 barrels a day from 2015 to 56.4 million barrels a day this year.
Meanwhile, global demand will increase by 1.2 million barrels a day in 2016 to 94.18 million a day, led by India.
“[This] underscores that the much anticipated swing to a deficit should not be taken for granted,” said Tim Evans, a Citi Futures analyst.
Investors will be watching out for the International Energy Agency report to be released later today as well as the weekly U.S. crude data on Wednesday.
Nymex reformulated gasoline blendstock for July RBN6, -1.54% –the benchmark gasoline contract–fell 117 points to $1.5245 a gallon, while July diesel traded at $1.5040, 105 points lower.
ICE gasoil for July changed hands at $446.00 a metric ton, down $6.25 from Monday’s settlement.