Daily Times

NEW YORK: Britain’s surprise vote to leave the European Union drove a sharp oil selloff Friday, with crude prices sinking around five percent on worries that global growth could slow further.

Analysts said that crude investors also headed for safer assets after the Brexit vote spurred huge volatility across markets.

New York’s main contract, West Texas Intermediate for August delivery, lost $2.47 at $47.64 a barrel.

In London, Brent North Sea crude for August fell $2.50 to $48.41 a barrel.

The Brexit vote drove a new level of uncertainty into the markets, with economists forecasting that the split will hit Britain’s economy significantly, possibly driving it into recession next year, and dragging down European growth overall.

“Recessions cause low oil prices and the UK break with the EU raises concern of a recession in Europe,” said James Williams of WTRG Economics.

In addition, he said, the process of arranging the separation will be lengthy and difficult.

“Every major headline on the negotiations for the next two years has the potential to move the oil market,” he said.

Tim Evans of Citi Futures cautioned that Friday’s oil market moves are just an initial reaction and not the full price adjustment to Britain’s decision.

“We think confidence has been shaken and that the lack of physical tightness exposed by the initial decline will be highlighted, leading to a further wave of selling,” Evans said.

Despite the losses — which came after traders bid up oil in expectation of a “Remain” vote — crude prices were still close to high levels for the year, helped by more signs of tightening.

Matt Smith of ClipperData pointed out that Saudi inventories have contracted more sharply in the past six months than any time on record.

In the United States, the number of active oil drilling rigs — an indicator of future production — fell by seven to 337 after three straight weekly gains.

“We are starting to see world oil production decline with natural declines, lack of new drilling and strife,” said Williams.

“The world is burning off some of the excess inventory that has been built, which is constructive.”