US Crude Continues to Drop on Brexit Turmoil

US Crude has posted slight losses on Monday, continuing the downward trend we saw in the Friday session. US crude is trading at $46.34 a barrel in the North American session. Brent Crude is trading at $47.34, for a premium of $1.00. It’s a quiet start to the week, with no major US indicators on the schedule. Goods Trade Balance and Flash Services PMI, both missed their estimates. On Tuesday, the US will release Final GDP and CB Consumer Confidence.

Financial markets across the globe remain in shock after the stunning news on Friday that the UK had voted to exit the European Union. The markets had bet that the Remain camp would narrowly win the day, and the opposite result sent stock markets tumbling on Friday. The historic decision raises many questions and has resulted in political and financial instability in Europe and the UK. The pound has plunged some 10 percent since the referendum. US crude has followed suit with a drop of 6.7 percent since the vote, as investors have flocked to safe-haven assets like gold and the Japanese yen.

The fallout after the historic EU referendum is difficult to gauge just after the vote, but there’s no doubt that Brexit will have unpredictable economic and political consequences in the UK and Europe, perhaps for years to come. Already, Prime Minister David Cameron has announced his impending resignation and the British Labor party is in turmoil. Even before the dust of Brexit has settled, there are signs that this divorce between Britain and the EU could be rancorous and messy. One British MP quipped on Friday that the EU referendum was the “divorce of the century”. British politicians have said there is no rush to implement the EU exit mechanism, but furious European lawmakers have called for the UK to leave as soon as possible. Britain may have voted “Leave”, but the timing and the type of exit plan remain unclear. The future framework of political and economic relations between the UK and the continent will have to be negotiated and we will see plenty of uncertainty in the coming months.

The EU referendum has ushered in a period of instability and uncertainty across Europe, with Brexit seemingly the only certainty one can point to. On the EU side, the bloc has plenty of new headaches, as it must deal not only with the British exit but also from rejuvenated Euro-skeptics across Europe. The Brexit vote is likely to renew debate about EU membership in countries like the Netherlands and Denmark. Even in France, a staunch member of the club, EU membership could be revisited, as Jean-Marie Le Pen, head of the Front National party, has called for an EU referendum in France. The EU is under a real threat of destabilization and will have to figure out how to deal with the tremendous challenges suddenly brought on by Brexit.

Overshadowed by the Brexit vote, the US wrapped up last week with soft manufacturing and consumer confidence numbers. Core Durable Goods Orders came in at -0.3%, marking the third decline in the past four months. This figure was well short of the forecast of +0.1%. There was no relief from Durable Goods Orders, which posted a sharp drop of 2.2%, compared to forecast of a 0.5% decline. The UoM Consumer Sentiment report also missed expectations, with a reading of 93.5 points. The markets had expected a reading of 94.2 points. Next up is Final GDP on Tuesday, and the strength of the release could have major implications regarding a rate move during the second half of 2016.

WTI/USD Fundamentals

Monday (June 27)

• 8:30 US Goods Trade Balance. Estimate -59.5B. Actual -60.6B
• 9:45 US Flash Services PMI. Estimate 52.0. Actual 51.3

Upcoming Key Events

Tuesday (June 28)

• 8:30 US Final GDP. Estimate 1.0%
• 10:00 US CB Consumer Confidence. Estimate 93.2

*Key events are in bold

*All release times are EDT

WTI/USD for Monday, June 27, 2016

WTI/USD June 27 at 11:30 EDT

Open: 47.1 Low: 46.35 High: 47.95 Close: 46.34

WTI/USD Technical

• WTI/USD posted gains in the Asian session but reversed directions in the European session. The pair is steady in North American trade
• 46.49 is fluid and is currently a resistance line
• 43.45 is providing support

Further levels in both directions:

• Below: 43.45, 39.32 and 35.25
• Above: 46.49, 50.13, 53.50 and 56.79

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