Oil prices are recovering with the help of polling data in the UK. Last week, investors turned bearish on oil after data suggested US oil refiners were beginning to increase in number and output again. Oil prices traded below $50 on speculation that supply would outpace demand. However, data on Monday showed pro-EU campaigners have made gains in UK polls, suggesting Britain may stay in the EU.
Brent crude oil trading in Europe rose to $50.20 after jumping 2.1 percent on news of the EU referendum polling data. In New York, West Texas Intermediate futures contracts jumped to $48.84, rising slightly less than Brent at 1.8 percent. The turnaround in oil prices came at a surprise to some. Researchers at Australia and New Zealand Bank said investors were ignoring data from the US showing an increase in the number of oil rigs. The analysts believe US producers will be less inclined to produce more oil at current market prices.
Markets were up across the board on Monday thanks to the British polling data. For the past several weeks, polls indicated that voters would choose to leave the EU. The new data shows the majority of the electorate choosing to stay in the EU, to the relief of investors worldwide. In addition to gains in oil prices, stock markets also surged. The Stoxx 600 rose as much as 3.4 percent in the morning in Europe. Japan’s Nikkei 225 gained 2.34 percent on the day, while Australia’s ASX grew by 1.82 percent. The British pound, which has depreciated over the past few months due to Brexit worries, jumped as much as 2.1 percent before retreating to a modest 1.5 percent gain.
Some analysts weighed in on the oil price jump, noting that a Brexit event would not necessarily impact oil prices directly. Britain’s oil market is relatively small compared to the entire global market. Oil prices would likely fall if Britain did leave, but not necessarily because of a change in market principles. However, the shock from a British withdrawal from the EU would likely lead investors to hedge against risk in most kinds of assets, which would likely result in lower oil prices.
In addition to the bullish attitude on Monday, the weakened US dollar likely added to oil’s gains as well. An index measuring the dollar against a basket of 16 major global currencies fell 0.5 percent on Monday. Oil prices are denominated in dollars, meaning any depreciation in the dollar consequently leads to cheaper oil. Over 2015, the dollar made impressive gains as the US economy steamed ahead. However, this year the weakness in the global economy has spread to the US. The Federal Reserve is now approaching a future rate hike with more caution, leading speculators to weaken the dollar.