Oil tumbled with most commodities amid a global flight from risky assets as the UK voted to leave the European Union.
Futures plunged more than 6.6% in New York and London, the biggest intraday drop in more than two months. Haven assets such as gold and the yen surged.
Crude will likely be affected by a stronger US dollar and slower global economic expansion in the near-term, Morgan Stanley said in a note this week. A boost in the currency crimps the appeal of commodities priced in the dollar.
Oil slid with industrial metals as the pound plunged to the lowest since 1985 and European equities slumped as the UK voted to quit the EU after more than four decades.
Central banks and governments have warned an exit will hurt economic growth and trigger volatility in financial markets. Almost 52 percent of voters sided with the “ Leave” campaign.
“If the Brexit vote progresses and spills over into a much bigger global recessionary concern which hurts global demand, that’s probably the biggest risk for oil,” said Angus Nicholson, a markets analyst in Melbourne at IG Ltd.
“It’s going to be a very difficult and long process for the UK to untangle itself from EU laws and every minor debate holds a major selloff risk.”
West Texas Intermediate for August delivery fell as much as $3.41, or 6.8 percent, to $46.70 a barrel on the New York Mercantile Exchange and was at $47.62 at 7:58 a.m. London time. Total volume traded was almost six times above the 100-day average. WTI is down 0.7 percent this week, set for a second weekly drop.
Brent for August settlement dropped as much as $3.37, or 6.6 percent, to $47.54 on the London-based ICE Futures Europe exchange. Prices are 1.6 percent lower this week. The global benchmark crude traded at a premium of 77 cents to WTI.
Oil will face a wave of risk aversion, but the market’s shift from oversupply to balance will overwhelm the currency impact of a leave vote, Societe Generale SA said in report June 21.
Crude in New York has advanced more than 75% from the lowest level in 12 years in February as disruptions from Nigeria to Canada and falling output in the US eased a global surplus.
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