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US oil ends 2.9% higher, at $49.37, as Brexit chances dim

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters

U.S. oil prices rose nearly 3 percent on Monday as polls showing a lower likelihood of Britain leaving the European Union weakened the dollar, boosting commodities priced in the U.S. currency.

Data from market intelligence firm Genscape pointing to a drawdown of 568,213 barrels at the Cushing, Oklahoma delivery base for U.S. crude futures in the week to June 17 also helped sentiment, said traders who saw the numbers.

August Brent crude futures were up $1.38, or 2.8 percent, at $50.55 a barrel. The contract has risen more than 6 percent since Thursday's settlement, after falling 10 percent in six previous sessions.

U.S. crude for July delivery, which expires on Tuesday, settled 2.9 percent higher, or $1.39, at $49.37. But the contract, which expires on Tuesday, was barely traded, with volume flocking to nearby August, which will be the next front-month for WTI.

Cramer: Oil trumps everything

Three opinion polls ahead of Thursday's vote on Britain's future in the EU showed the 'Remain' camp recovering some momentum, although the overall picture was of an evenly split electorate. Traders said Britain's exit, or Brexit, would cause economic turmoil to Europe and beyond.

The pound climbed 2.3 percent to $1.4682 against the dollar. A weaker dollar makes commodities denominated in the greenback more attractive for other currency holders.

Perceived safe havens such as gold, the U.S. dollar, and the came under pressure, while oil looked set for its largest two-day rise in a month and the likes of copper and equities rallied.

Analysts said oil prices should stay firm as long as a Brexit looked unlikely, although a strong rally may be difficult absent more supply outages like those out of Nigeria and Canada that boosted the market to the 11-month highs of over $50 earlier this month.

"We are not expecting sustained crude price strength back to above the $50-51 area in either WTI or Brent as fundamentals appear to be undergoing a very gradual shift back toward the bearish side," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

Scott Shelton, energy futures broker with ICAP in Durham, North Carolina, said he was not impressed by the four weeks of continuous U.S. crude stock draws, considering Nigerian outages, Canada outages and subtracting the French strike effect.

"I guess I am still not ready to join the bulls at this point and I am somewhere between bearish and no view and waiting for some clarity," Shelton said.

A crude conundrum?

Oil prices continued to recover despite data showing U.S. energy firms adding oil rigs for a third week in a row, suggesting higher production to come.

Oil services firm Baker Hughes reported nine rig additions in the week to June 17.

Aside from Brexit concerns, the market is likely to be caught in a range as any gains would likely be limited by the return of more shale drillers in the United States, said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

"Capping market gains at the moment is the potential for those very agile U.S. producers to jump back into production should we see any further substantial rises," he said.

Correction: U.S. oil settled up 2.9 percent. A previous headline misstated the percentage change.