Markets fear Britain’s vote to leave the EU causes contagion

Contagion from Britain’s decision to leave the European Union continues to roil energy markets as contagion spreads from Britain’s failing banking sector to its recent $3.5 trillion effort to build a Brexit “super-nation” (the Irish will take over its economic sector and country planner).

The latest drop in crude futures was most acute in the Netherlands, where a steep fall in investment and selling by Britain’s Vereinigung Catholique (VC) operator (VN: UNEX) during the daily energy auction appeared to have fanned fears about the future demand for oil and sent crude lower in Amsterdam and Rotterdam.

VN traded on a 1.25 to 1.75 loss.

Demand fears were also stoked by the issuance of the largest-ever high-risk municipal bond on Wednesday: $9.5 billion of tax-exempt Emissions Trading Program bonds by the New York City Housing Authority.

A steep selloff, that sent a yield on the 8.8-year US 10-year Treasury note to a high of 2.51%, sent yields across Europe and Asia to multi-month highs.

Hedge funds and other money managers slashed their wagers on higher oil prices.

In Europe, a weekly survey by the data provider Platts showed that net long positions among them fell 12 percent last week to 56,864.

In the United States, the speculators also reduced net long positions in the five-week rolling period ending June 21 by 2,847 contracts, according to the EIA.

China’s yuan weakened on Wednesday after President Xi Jinping expressed his intention to create a free trade area at a G20 meeting and as data indicated a drop in exports this month.

In the United States, oil was down 0.4 percent to $50.26 per barrel after Brent fell to a six-month low of $50.17 on Monday before climbing back above $51.

“Some of the under-currents that has been going on have been centered on some of the news flow,” said Scott Shelton, senior commodities broker at ICAP in Durham, North Carolina.

“There is more concern about demand, geopolitical, global growth stuff. The commodity markets are increasingly looking at some of the fundamentals, like maybe not quite enough supply meeting demand. The short-covering has kind of flushed out.”

The Brexit conundrum is the latest crunch on oil markets, which have been grappling with rising production from the United States and high production in OPEC member Libya, slower economic growth, and a rapidly expanding U.S. economy.

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