Oil prices fall as Brexit lingers, refined product glut looms

Oil prices dropped on Monday, extending sharp declines after Britain`s vote to leave the European Union sparked a sharp selloff in global markets on Friday.

Global financial markets plunged on Friday as results from a referendum defied bookmakers' odds to show a 52 % to 48 % victory for the campaign to leave a bloc Britain joined more than 40 years ago. 

Brent crude futures were down 15 cents at $48.26 a barrel by 0238 GMT on Monday, after settling down $2.50, or 4.9 %, at $48.41 on Friday.

U.S. crude was down 25 cents at $47.39 a barrel, after closing down $2.47, or 4.9 %, on Friday.

Oil prices were under pressure as the British pound fell anew on Monday, with investors still at a loss as to what happens next now that the country has voted to leave the European Union. 

While roiling equity and currency markets, analysts said that Britain`s vote to leave the EU would not have a big effect on fundamental oil demand.

"If we assume a 2 % drop in UK GDP in response to the exit vote, which is on the high end of our economists` estimates, then UK oil demand would likely be reduced by 1 % or 16,000 barrels per day, which is a 0.016 % hit to global demand," said Goldman Sachs.

Of more concern to the market is a building refined products glut, especially in Asia.

"For near term oil, we remain most concerned about product oversupply, China demand, the macro outlook, and the likely return of production," Morgan Stanley said in a note to clients.

Chinese refiners have responded to the Asian oil products glut by exporting record amounts of gasoline and diesel fuel into regional markets, eroding refinery profit margins and swelling storage.

As a result, analysts say there is a possibility that refiners dial back production and curb orders for their main feedstock crude oil, potentially weighing on prices.

Despite this, the bank added that "the medium term trend towards oil market rebalancing appears in place, barring a recession," implying that oil prices would likely remain stable or rise as a supply overhang that pulled down prices by as much as 70 % between 2014 and early 2016 is gradually brought down, bringing production back in line with consumption. 

In shipping, Panama opened the long-delayed $5.2 billion expansion of its shipping canal connecting the Atlantic and the Pacific oceans on Sunday, but the facilities are still too small to handle oil super tankers like Very Large Crude Carriers (VLCC).