EMEA News
Analysts Bullish on Oil Despite Falling Again In Wake of Brexit
The Brexit vote last week continued to exert its negative influence on the oil market, but at least one analyst believes the UK voting to leave the European Union has provided a convenient vehicle for a breather in prices, and other analysts think the vote may herald certain production benefits.
Brent crude traded at $47.16, down 1.82 percent on Monday, while U.S. crude settled at $46.33, down 2.75 percent; so far, Brent and U.S. crude futures have lost about 7 percent since Thursday's Brexit vote.
Notably, the dollar climbed almost 1 percent on Monday, near Friday's three-month high, while the British pound slid to $1.3188 from $1.3638 late Friday.
Although Brexit continues to send shockwaves through the global financial community, many observers are taking a calm view about its long-term impact on oil, with Goldman Sachs stating that "The impact on industrial commodity fundamentals of a leave vote is extremely small from the demand side."
The bank also suggested that, "On the supply side, a stronger dollar would lower the cost of production, which has likely been priced into markets with [Friday's] selloff."
Tim Pickering, president at Auspice, pointed out that even if the exit vote slowed global economies, overall demand would decline by just 130,000 barrels, or 0.1 percent; of the vote's immediate effect on prices, he said, "Crude has already come a long way and needed a breather; Brexit is simply an excuse."
As other observers have noted, bigger factors than Brexit will impact the market in the near-term, with China being cited as the main risk due to a possible further currency devaluation and declining gasoline and diesel demand.
Todd Garner, managing partner at Protec Energy Partners LLC, remarked, "China's demand is definitely waning; it is what's slowing everything down."
Still, not everyone is sanguine about Brexit's impact: for example, Tyler Yell, trading instructor for Forex, writes, "If the US dollar begins to strengthen further, and WTI Crude Oil falls back below the 55-Day Moving Average..... we could likely see a retest of the March corrective zone.
"This zone sits at $41.85/$35.81 per barrel; a break below this zone would favor retest below $30 a barrel.
Yell adds, "Put another way; the recovery was fragile, and we knew it was such, but an unwinding of the risk-on environment and such an aggressive fashion could see a rather quick drop for which we should be prepared."
Ship and Bunker predicted much of the immediate fallout of Brexit a week ahead of the vote, but it also noted that a Brexit softening of oil and bunker prices could easily be thrown into reverse by events in Venezuela or Nigeria.
