Oil prices are now 10% from their 2016 highs and the declines have accelerated But why? Below is a selection of possible drivers contributing to prices barrelling south. The list is non-exhaustive, but hopefully covers most of the possible drivers.

1. USD strength
   • The US Dollar basket is testing 95.5 and a hitherto resistant trendline of falling highs dating back to late January
   • GBP/USD remains weak (April lows) on Brexit fears with yet more polls suggesting the Leave camp in front, even extending its lead.
   • EUR/USD is back down around month lows on concerns a Brexit vote will lead to havoc in the Eurozone
   • The USD itself is benefiting from some safehaven seeking (like the Yen) as Gold makes fresh 22-month highs and Silver guns for 2016 highs
   • “With Oil (and commodities) denominated in USD, a stronger USD tends to hinder prices by making it more expensive to buy for those using other currencies. And vice versa”
2. While a dovish Fed outlook is normally good for oil via a weaker USD, it’s no good when other currencies are headed other way (see above; GBP, EUR)
3. A Fed worried about a Brexit vote means it sees a potential meaningful impact on US and global growth which is bad for perceived demand for Oil (and raw materials in general)
4. Less supply disruption from Nigeria and Canada is offering reduced support than of late
5. US Weekly Crude Stocks data showed a smaller than expected drawdown last week implying less demand than hoped
6. The latest US jobs report has markets jittery again about the strength of US economic recovery and thus demand for oil
7. The latest IEA report suggests no global oil market rebalance before mid-2017
8. OPEC remains an unknown quantity with discord in its ranks and still pumping more than the world needs.
9. The US rig count has turned suggesting more US supply on the way, which makes sense as the shale/frackers said $45-50 would tempt them back
10. After an 80% rally for Crude and 90% from Brent from the 2016 lows, some simple profit-taking is to be expected ahead of Brexit vote. And that $50 market was always going to be a hurdle

Mike van Dulken, Head of Research, 16 Jun