EMEA News
Oil Markets Drop in Wake of Brexit Vote But Analysts Say The Turmoil is Short-Lived
As pundits scrambled to predict the ramifications of the U.K.'s unexpected vote to leave the European Union, the news had a predictable negative effect on oil markets – but arguably not as catastrophic as some had feared.
After falling to $47.54 earlier on Friday, Brent crude settled at $48.41 per barrel, and after a drop to $46.70 in overnight trading, U.S. crude Friday settled at $47.64 on the New York Mercantile Exchange.
The losses were less than at the height of hysteria over Brexit last week, when Brent sank to $46.94 and U.S. crude dropped to $45.83.
Still, Bjarne Schieldrop, chief commodity analyst at SEB, warns that Brent could fall "toward $45 or lower" before a full post-Brexit recovery.
However, despite the worldwide headlines caused on Friday by nearly 52 percent of the U.K. electorate voting to leave the E.U., and notwithstanding respected and self-styled experts alike offering their opinions – mostly negative – on what will happen next, cooler heads are suggesting that Brexit may not be as calamitous as initially thought.
While calling the U.K. vote "an historic event," Dominick Chirichella, senior partner at the Energy Management Institute, said, "markets will not remain in turmoil as they are at the moment for an extended period of time.
"There is no indication that the global financial markets are anywhere near a meltdown as we saw in 2008; the UK will not collapse and the EU will not collapse anytime soon."
Will Riley, co-portfolio manager at Guinness Atkinson Asset Management Inc., said that although Britain's vote could weaken global oil demand, Europe isn't the main driver for the demand: he expects international oil consumption to rise strongly this year due to the relatively low prices and emerging Asian economies.
Plus, since the U.K. accounts for under 2 percent of global demand, "There is no chance whatsoever that the supply balance for oil will change because of Brexit," according to Danilo Onorino, portfolio manager at Dogma Capital SA.
Another factor that will play out in coming weeks is the long-awaited revitalization of the U.S. shale sector: many producers suggested they would invest in new drilling based on oil topping $50 per barrel, and if the prediction that current market volatility is short-lived, rig counts could easily still climb for the rest of the year as expected (Simmons & Co expects about four rigs to be added per week in the second half of 2016).
The sentiments expressed by Chirichella and others strongly reflect those made by Fereidun Fesharaki, chairman of FGE, who previously told concerned CNBC analysts that Brexit would have minimal impact on the market.
He said an exit from the EU would bring down oil prices "for a day or two, and then soon they would realize it makes no difference"; then he suggested that analysts instead focus their concerns on "all this oil which is offline, in Libya, in Canada, in Nigeria: if they all gush back together, then people can begin to run for the door."
