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Oil prices dive after Britain votes to leave EU

Analysts said oil could face further downward pressure. Photograph: (Getty)

Reuters London Jun 24, 2016, 10.39 AM (IST)
Oil prices slumped by more than six per cent on Friday after Britain voted to leave the European Union, raising fears of a broader economic slowdown that could reduce demand for oil.

Financial markets have been worried for months about what Brexit, or a British exit from the European Union, would mean for Europe's future, but were clearly not fully factoring in the risk of a leave vote.

British Prime Minister David Cameron, who campaigned to remain in the EU, said he would stand down by October.

Brent crude was down $1.90 at $49.01 a barrel. US crude was down $1.90 at $48.21 a barrel.

Earlier in the day, both contracts were down by more than $3, or over six per cent, the biggest intra-day declines for both since April 18, when a meeting of top global oil producers failed to agree on an output freeze.

Sterling sank 10 per cent in value to its weakest since the mid-1980s. The FTSE 100 fell more than eight per cent at the open, with banks among the hardest hit.

"In the interim, it's down for everything from equities to oil. Bad economies in the UK and Europe are not good for oil and there could be a domino effect on other economies in Asia," said IHS oil analyst Victor Shum.

Some analysts said oil could face further downward pressure.

"Our view is that we have not yet seen the low oil price of the day with Brent likely to trade down towards $45 or lower before we have seen the worst of it," Bjarne Schieldrop, chief commodity analyst at SEB, said in note to clients.

The vote to break with Europe is set to usher in deep uncertainty over trade and investment and fuel the rise of anti-EU movements across the continent.

"Today, it's all about sentiment and everybody looking at each and saying 'what's next?'" said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam.

"It will be interesting how we trade next week, because then the first impact is behind us and at some point the market should return to look at fundamentals again," Cleef added.

Analysts have said that once the market refocuses on fundamentals, oil was likely to fall, given abundant stocks around the world are shrinking very slowly despite large production outages in countries like Nigeria.

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