Oil prices drop as concerns about global economy rise
By Barani Krishnan
NEW YORK, July 5 (Reuters) – Oil prices tumbled 5 percent on Tuesday, with U.S. crude heading for its steepest daily decline in five months, as investors worried that Britain’s exit from the European Union would slow the global economy, making it unlikely energy demand will grow enough to cut a supply glut.
Data showed higher supplies, including an inventory build at the delivery hub for U.S. crude futures.
Brent crude was down $2.44, or nearly 4.9 percent, at $47.66 a barrel by 1:09 p.m. EDT (1709 GMT).
U.S. crude fell $2.55, or 5.2 percent, to $46.44. That was the biggest one-day percentage drop for U.S. crude since Feb. 9, Reuters data showed.
Brexit worries hit Britain’s property market and drove the pound to a 31-year low. A flurry of data from China in coming weeks is likely to show weaker trade and investments.
Traders also cited data from market intelligence firm Genscape showing a build of 230,025 barrels at the Cushing, Oklahoma storage hub for U.S. crude futures, during the week to July 1.
“There are risk-off trades across the board,” said David Thompson, executive vice-president at Washington-based commodities broker Powerhouse. “Stocks, commodities, sterling are all off while U.S. bonds and T-bills are soaring.”
Oil prices are up almost 80 percent from 12-year lows of around $27 for Brent and $26 for U.S. crude. The rebound was fueled by supply outages from Canada to Nigeria that created the perception that a two-year-old supply glut may be easing.
Yet, a partial recovery in Nigerian output helped boost OPEC crude production last month, a Reuters survey found.
“The increase in OPEC production threatens to postpone the anticipated rebalancing of the global market,” said Tim Evans, energy futures specialist at Citi Futures in New York.
In Libya, where oil output has slowed to a trickle due to conflict, the National Oil Corp agreed to merge with its domestic rival, raising hopes the OPEC member could start to pump more.
A Reuters review of disclosures by the largest 30 U.S. shale firms showed 17 increased their hedge books in the first quarter, the most at least since early 2015.
Several, including EOG Resources Inc and Devon Energy Corp, two of the biggest shale companies, secured significant protection of future earnings for the first time in at least six months.
“You have to remember that sentiment in this market is still so fragile,” said Michael Tran, director of commodity strategy at RBC Capital Markets in New York. “Producers ended up locking in something in case we did a double dip.”
Storage of refined oil has hit a glut at New York harbor.
(Additional reporting by Alex Lawler in LONDON and Henning Gloystein in SINGAPORE; Editing by David Gregorio and Cynthia Osterman)