Oil prices steady after Brexit vote, but refined products glut looms

Oil prices suffered fresh losses in Asian trade today as the fallout from last week's decision by Britain to leave the European Union batters confidence and ushers in a period of uncertainty.

On Sunday, London Brent crude for August delivery was 24 cents down at $48.17 per barrel after settling on Friday $2.50 down or by 4.9 percent at $48.41. At about 4 am GMT, the USA benchmark West Texas Intermediate fell 26 cents, or 0.55 per cent, to United States dollars 47.38 and Brent shed 15 cents, or 0.15 per cent, to USD 48.26. On Friday, the global financial markets plunged when Britain chose to leave the bloc it joined a little more than forty years ago. USA crude was up 18 cents at $47.81 a barrel.

The volatility is likely to remain over the near term, as the pound GBPUSD, -3.2977% fell further on Monday and sent the US dollar soaring. "This is extremely small on any measure", said Goldman Sachs.

PVM's Tamas Varga said given Brexit's limited impact on global oil demand in the foreseeable future, a tightening in the oil market remained on the cards in the second half of the year. British finance minister George Osborne said Brexit was likely to lead to further volatility on financial markets but added that the world's fifth-biggest economy would cope with the challenge ahead.

"Clearly many market participants view current oil prices as an attractive entry level after their five per cent decline on Friday", analysts at Commerzbank said.

"For near term oil, we remain most concerned about product oversupply, China demand, the macro outlook, and the likely return of production", Morgan Stanley said in a note.

Chinese refiners have responded to the Asian oil products glut by exporting record amounts of petrol and diesel fuel into regional markets, eroding refinery profit margins and swelling storage.

As a result, analysts say there is a possibility that refiners dial back production and curb orders for their main feedstock crude oil, potentially weighing on prices.

The exit may also cause the Kuwaiti oil price to average about $47 a barrel for the rest of 2016, said oil analyst Abdul-Samiea Behbehani, in remarks in the wake of the jolting Brexit vote.

Many analysts were of the view that Britain's vote to leave the European Union would not lead to an oil price drop even if it rattles the equity and currency markets.