Oil Futures Drop to New Lows on Global Growth and Oil Glut Concerns
Oil futures slid on US inventory data, Brexit concerns Reuters

Oil futures slipped by over 1.5% on Wednesday (22 June), as data revealed a lower-than-expected weekly US crude inventory drawdown, and opinions polls continued to suggest the outcome of the UK's EU referendum was on a knife edge.

At 5.24pm BST, Brent was down 1.62% or 82 cents at $49.80 per barrel, while the West Texas Intermediate fell 1.60% or 80 cents to $49.05 per barrel.

In a scheduled data release, the US Energy Information Administration administration revealed the country's oil stockpiles declined by 917,000 barrels for the week ended 17 June.

However, the decline was well below the 1.5-1.7m barrel drawdown forecast by market analysts.

Meanwhile, opinion polls continue to point to a very close vote and an uncertain outcome of a referendum on Britain's membership of the EU. In the event of Brexit, traders say already weak OECD oil consumption could be dented further by a weakening of economic activity across the UK and EU.

Oil companies already grappling with a 'lower for longer' oil price environment could take a hit depending on their individual cash holdings, according to Fitch Ratings.

In a note to clients, the ratings agency said the chances of survival of small oil exploration firms "vary significantly".

"Companies with higher volumes, stronger liquidity, lower production costs and better hedging will be the best placed to survive. Liquidity remains a key factor, as smaller companies are more vulnerable to cashflow problems because of concentrated production, often higher leverage, negative free cash flows and limited capital markets access."

Among the companies in Fitch's peer study with the lowest credit quality were Seven Energy International and EnQuest.

"The recent recovery may prove short-lived, and we assume Brent prices to average $35 a barrel in 2016, rising to $45 in 2017 and $55 in 2018," the agency added.

Finally, a weaker dollar also served as a drag on oil prices, after US Federal Reserve Chairwoman Janet Yellen virtually ruled out a July interest rate hike, and flagged a potential Brexit to be among macroeconomic risks on the horizon.