Brexit and oil prices

Brexit and Oil prices – What Brexit could mean for oil prices

The Friday after the Brexit vote revealed that Britain would leave the European Union, oil prices settled at 5% lower than they had been. This immediately spurred concern that oil prices would drop, putting to an end the three-month long recovery that was being experienced by the global oil markets. This is not the first time that financial markets worried about the implications of the Brexit vote, but was the first indication that perhaps they had not thought about all of the risks that would be involved with the ‘leave’ vote actually winning.

The dollar index saw a jump of about two percent immediately following the leave vote, which is the highest it has jumped since 2008 when the financial crisis occurred. At the same time, the pound dropped to the lowest it has been in 31 years, following the announcement by Prime Minister David Cameron that he would be stepping down due to the vote. The dollar starting to rally as a result of the news means that oil (and similar commodities that are counted in greenbacks) will become much costlier for those who use the euro and other forms of currencies.

Oil market analysts however attempted to look at Brexit with a more well-rounded view that was less alarmist, explaining that Brexit is a historic event that is not something that can be considered ‘finished’ anytime soon, just because the vote is over. However, just because the implications of Brexit will take a while to sort out, does not mean that the oil markets are going to stay in turmoil for a long period of time. There is no reason to think that a financial meltdown will occur from the Brexit vote, and the UK and the EU do not appear to be anywhere close to a collapse.

Proof of this can be seen in current oil prices which have seemingly held their rates. While they fall to their lows after news of the leave vote, for the past month they have largely held higher than the original drop. It is possible that Brent will trade lower according to some oil analysts, and the worst may still be to come, but once that occurs there is no reason to believe that oil will not settle back in at a more comfortable spot on the market. The truth is, on a global scale, the situation remains unclear – but for consumers of heating oil, it’s business as usual.