Oil prices fell Monday with a stronger dollar and haven-seeking investors still pushing crude into a retreat after Friday's unexpected choice from U.K. voters to leave the European Union.
U.S. oil for August delivery recently traded down 2.3% at $46.57a barrel on the New York Mercantile Exchange. That would be its fourth-largest daily decline since early May. Brent crude recently traded down 2.1% to $47.39 a barrel on ICE Futures Europe. Both are at one-week lows.
This is now the second day of losses on top of oil's plunge that fell as far 7% at one point on Friday after Britain's decision to exit the EU, known as "Brexit," surprised investors. The vote has shaken investors' confidence in the stability of the global economy and financial system, pushing them out of many stocks, currencies and commodities and into assets considered safe-havens like gold and the U.S. dollar, analysts and traders say.
The pound fell further on Monday and sent the U.S. dollar soaring. The Wall Street Journal Dollar Index, which tracks the greenback against a basket of other currencies, recently gained 0.9%. A stronger greenback makes oil more expensive for traders using other currencies, typically pushing prices down.
Crude's fall Monday is "still very, very much tied to global markets rather than oil fundamentals, at least for now," said Scott Shelton, broker at ICAP PLC. "Fundamentals are not near-term strong enough to get anyone to stand in front of a liquidation selloff."
Many had been betting that a glutted market was coming back into balance. Oil has had its sharpest rally since the financial crisis, nearly doubling in price since late February largely from supply outages around the world and lower U.S. output.
That rally hasn't lost its support, thought there are new risks, analysts at Goldman Sachs Group Inc. said in a note published Friday and released to the media Monday. The big one is China, which will be trying to ward off another sudden currency devaluation as investors flee to the dollar, the yen and other safe-haven assets. China is the world's second-biggest oil consumer and often the biggest driver for growth.
But even large spillover effects from Brexit are likely to reduce oil demand by just 130,000 barrels, or 0.1% of global demand, the bank said. Deutsche Bank had estimated just 100,000 fewer barrels of oil demand a day, compared with outages in Nigeria that are taking 400,000 barrels a day off the market.
"The impact on industrial commodity fundamentals of a leave vote is extremely small from the demand side," Goldman said. "On the supply side, a stronger dollar would lower the cost of production which has likely been priced into markets with (Friday's) selloff."
In the short-term, prices could keep falling closer to $40 a barrel, said Mr. Shelton and Todd Garner, managing partner at hedge fund Protec Energy Partners LLC, which manages $100 million of assets out of Boca Raton, Fla. So many investors have bet on rising prices that it could exacerbate this retreat as traders clear out of the market during a period of uncertainty, they said.
Other banks are also warning that the move limits the chances of any bullish surprises jolting oil much higher this year while highlighting the chance of slowing demand, especially from China. It has pushed many to delay their expectations for a bigger oil-price recovery much deeper into 2017, Mr. Garner said, adding that he isn't bullish until then.
"China's demand is definitely waning," he added. "It is what's slowing everything down."
Gasoline futures recently fell 1.9% to $1.4958 a gallon. Diesel futures fell 1.7% to $1.4304 a gallon.
--Miriam Malek and Jenny W. Hsu contributed to this article.
By Timothy Puko