Crude prices slump as much as 6% on market contagion

NEW YORK/LONDON: Oil prices fell about 5 percent in New York’s morning trade after Britain’s vote to leave the European Union led to huge risk aversion and rally in safe havens like the US dollar that could derail a three-month long recovery in global oil markets.

Financial markets have been worried for months about what Brexit, or a British exit from the European Union, would mean for Europe’s future, but were clearly not fully factoring in the risk of a leave vote.
The dollar index jumped 2 percent, its most in a day since October 2008, while sterling collapsed to a 31-year low after British Prime Minister David Cameron, who campaigned to remain in the EU, said he would stand down by October.
A rallying dollar makes oil and other commodities denominated in the greenback costlier for holders of the euro and other currencies.
Brent crude was down 4.5 percent, or $2.30, at $48.61 a barrel by 1446 GMT. It had fallen 6 percent earlier to $47.54.
US crude was down 4.2 percent, or $2.10, at $48.01. Analysts in oil markets sought to put the crisis in perspective even as some $2 trillion was wiped off equity bourses worldwide, and money poured into safe-haven gold and government bonds.
“This is an historic event and will not be swept under the rug very quickly,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.
“That said markets will not remain in turmoil as they are at the moment for an extended period of time. There is no indication that the global financial markets are anywhere near a meltdown as we saw in 2008. The UK will not collapse and the EU will not collapse anytime soon.”
Despite Friday’s retreat, oil prices held above last week’s one-month lows when fears of Brexit spiked and Brent hit a trough of $46.94 while US crude tumbled to $45.83.
Some analysts said oil could face further pressure. “Our view is that we have not yet seen the low oil price of the day with Brent likely to trade down toward $45 or lower before we have seen the worst of it,” Bjarne Schieldrop, chief commodity analyst at SEB, said in note to clients.
Commerzbank analyst Carsten Fritsch had a similar view. “Higher risk aversion is likely to make it hard for prices to regain the $50 per barrel mark in anything like the near future.”