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An Extended Moment of Pause. Brexit the Cause?

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Daily Settlement Prices

Oil prices fell for second straight day on Friday, with the front month WTI settling below $50 after three days above it, as market participants continued to take commodity risk off of the table. Fears of economic turmoil in Europe (and by a vote by Great Britain to exit the European Union, or the “Brexit”) caused a move higher in the dollar as well, helping with the commodity purge (global equities were also suffering). While supply fundamentals are still firmly in place (that is, supply disruptions), the economic uneasiness of the last few days has led to an extended moment of pause.

Oil prices have risen by seven dollars in a month, a fairly quick and substantial percentage move in such a short amount of time. WTI’s three-day settlement foray above $50 culminated with the large crude oil draw in the weekly inventory summary, but since then the July WTI contract is down more than two dollars.
After Thursday’s soft finish, July WTI began the day on Friday on similar terms, trading down a dollar and certainly below $50. The dollar was already markedly on the move higher (the potential “Brexit” has led to a minor flight to safety, which usually is the dollar), adding to the momentum in selling. The market’s weakness was gradual through the day on Friday (with extended and excessive losses in RBOB), and with little hope for a late day recovery. At the settle, July WTI was off $1.49 and closed at $49.07. For the week, July WTI did post a minor gain (up 45-cents), though the big gains early in the week were nearly matched by losses in the last two days.

July RBOB lost six cents on Friday (and nearly five cents for the week), with some market participants calling RBOB’s recent detachment from the rest of the complex as the “June Swoon.” While demand remains very strong, there is good supply in most markets (ex-Chicago area), especially in PADD I (home of the NYMEX delivery point). Friday saw July Heating Oil lost over three cents as well, but the RBOB / HO spread is now a mere four cents (after starting the month at a 12-cent spread).

061316 Weekly Pricing Graph

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