Oil prices slipped on Monday as market participants absorbed the shock of Britain’s vote to leave the European Union though some analysts said Brexit would have a limited impact on global fuel demand.
Brent crude futures were down 35 cents at $48.06 a barrel by 1123 GMT. U.S. crude was down 42 cents at $47.22 a barrel.
Both crude benchmarks slumped about 5 percent on Friday amid plunging global financial markets after the British referendum results gave an unexpected 52 percent to 48 percent victory to the campaign to take Britain out of the EU.
Oil prices rose slightly early on Monday as analysts said Britain’s EU exit would have very little impact on physical oil trading – before slipping back later.
“If we assume a 2 percent drop in UK GDP in response to the exit vote, which is on the high end of our economists’ estimates, then UK oil demand would likely be reduced by 1 percent or 16,000 barrels per day, which is a 0.016 percent hit to global demand. This is extremely small on any measure,” said Goldman Sachs.
International Energy Agency chief Fatih Birol also downplayed the impact of Brexit on global oil demand.
“Since a big chunk of oil demand is from emerging countries, namely Asia, I don’t see a major impact (of Brexit) on oil demand,” he told Reuters.
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.
“If one subscribes to this view then it is not difficult to conclude that the Brexit-triggered oil price sell-off should not last and the downside is limited,” he said.
Of more concern to the market on Monday was a growing glut of refined products.
“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 gasoline and diesel fuel into regional markets, eroding refinery profit margins and swelling storage.
Morgan Stanley said the larger political and policy repercussions of a Brexit could not be ignored.
“Europe is a big trading partner for the United States and China, which could lead to knock on global effects, and a stronger dollar is generally unhelpful for demand,” Morgan Stanley said.
“In a high stress case, our economists see global GDP slowing to 2.7 percent in 2017 – nearly a global recession.”