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Oil sinks 4% as Brexit claims victory and dollar moves higher

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Oil sinks 4% as Brexit claims victory and dollar moves higher

Oil sunk nearly 4% in European trade on Friday, erasing overnight gains, after the official results from U.K. vote on membership in the European Union (EU) gave the victory to Brexit, as the decision to leave is known, and the dollar moved higher.

The U.K. voted by a substantial margin to exit the EU, with the Leave side winning 52% of the vote, against 48% to remain.

A stronger dollar also put downward pressure on black gold, as crude becomes more expensive for buyers using other currency. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, jumped 1.97% to 95.17 after hitting overnight highs of 96.70.

On the ICE Futures Exchange in London, Brent oil for August delivery slumped $2.06, or 4.05%, to trade at $48.85 a barrel by 08:32GMT, or 4:32AM ET.

On Thursday, London-traded Brent futures closed up $1.06, or 2.11%, to settle at $50.94, near session highs of $50.95, in the final hours of the Brexit vote.

Elsewhere, crude oil for August delivery on the New York Mercantile Exchange $2.00, or 3.99%, to trade at $48.11 a barrel.

A day earlier, New York-traded oil prices traded up 99 cents, or 2.02%, to close at $50.13.
Despite Friday’s losses, U.S. crude futures are up nearly 85% since falling to 13-year lows at $26.05 on February 11 as a decline in U.S. shale production boosted sentiment. However, with prices now at levels that make drilling economical for some firms, the rig count might start rising soon and the decline in U.S. production may slow.

In that light, energy traders looked ahead to Friday’s rig count report from Baker Hughes for further indications on whether U.S. shale producers are continuing to return online, as oil prices stabilize. A week earlier, the U.S. oil rig count rose by nine to 337 for the week ending on June 10, representing their third straight weekly increase.

 The renewed gain in U.S. drilling activity fueled speculation that domestic production could be on the verge of rebounding in the weeks ahead, underlining worries over a supply glut.
Meanwhile, Brent’s premium to the WTI crude contract stood at 74 cents a barrel, compared to a gap of 81 cents by close of trade on Wednesday.

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