Oil up 3 percent on post-Brexit buying; big U.S. drawdown eyed

By Barani Krishnan

NEW YORK (Reuters) – Oil prices jumped 3 percent or more on Tuesday with investors buying back into the market after a two-day rout triggered by Britain’s vote to leave the European Union.

Potential oil supply outages and crude inventory drawdowns also returned investors’ attention to market fundamentals.

A looming strike at several Norwegian oil and gas fields helped put a floor beneath crude futures after an 8 percent price slump over two days.

Investors were also counting on a sizeable and a sixth weekly drop in U.S. crude stockpiles.

The American Petroleum Institute (API) indicated in a preliminary report that crude inventories could have fallen nearly 4 million barrels for the week to June 24, some two-thirds more than the 2.4 million barrels expected by analysts.

API’s data showed refineries had boosted output last week, anticipating strong fuel demand ahead of the July 4 U.S. Independence Day holiday weekend.

The U.S. Energy Information Administration will issue official stockpiles data on Wednesday.

Brent crude settled up 3 percent, or $1.42, at $48.58 per barrel. It extended gains in post-settlement trade on the API data, reaching $48.79.

U.S. crude rose 3.3 percent, or $1.52, to settle at $47.85. It got to $48.18 in after-hours trade.

“It’s the season for higher refinery runs and I think the API figures are rightly reflecting that,” said Carl Larry, director of business development for oil and gas at New York consultancy Frost & Sullivan.

In the two past two sessions, oil fell nearly $4 a barrel on fears of market contagion from the Brexit vote. Brent hit seven-week lows under $47 on Monday and U.S. crude a one-month trough below $46.

Tuesday’s rebound was helped by the dollar’s retreat from three-month highs, making greenback-denominated crude less expensive for holders of other currencies.

Even so, some analysts were wary.

Data showed Nigeria’s oil production back up at around 1.9 million barrels per day from an early June low of 1.6 million bpd. Nigeria had been the focus of supply outages over the past few months due to rebel attacks on oil infrastructure.

“I would categorize today’s current move higher as a corrective move after the strong push lower since last Thursday,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said, pinning a neutral to slightly bearish view on crude prices.

“More time is needed to safely say the down move in oil is officially over.”

(Additional reporting by Ron Bousso in LONDON and Henning Gloystein in Singapore; editing by Marguerita Choy, Diane Craft and David Gregorio)