The Oil Industry and the British Referendum

تم نشره في Tue 21 June / Jun 2016. 12:00 AM
  • Oil Price Fluctuate as British Referendum to secede from EU - (Sputnik News)

By: Leheb Abdul Wahab
Iraqi Energy Economist

Oil markets eagerly anticipate the outcome of the British Referendum due in few days’ time. The British electorate will be asked, this coming Thursday, June 23rd, 2016 to vote either for staying in the EU, a move backed by the Conservative government and the opposition Labour Party alike, or secede —the Brexit-like faction to Exit the EU in its entirety; which has gained momentum of late, making the whole outcome too close a call.

An EXIT vote will have grave ramifications. The International Monetary Fund (IMF) has warned that should Britain, the EU’s 5th largest economy, with a GDP of around USD2 trillion, and financial hub of the world, indeed secede, its economy will be shrinking by 5 per cent come 2020, losing its largest trading partner; Europe, prospected for shedding thousands of jobs at home.

Looking at such a development from an oil respective, a Domino Effect cannot be ruled out. Even though Britain is less dependent on oil than on its European counterparts, the country is still endowed with the North Sea oil productions at more than 1.8 million barrels per day, making Britain self-sufficient, to a large extent. Yet, it is the element of uncertainty that has seen the price of Brent Oil dropping to USD48 per barrel —roughly— for seven days in a row.

Other factors are also in play. Chief among them is Iran’s restoration of its production capacity to pre-sanction levels, contrary to expectation, nearing 4 million barrels per day. The drop in oil prices over the last week or so, was offset to an extent by the appreciation of the value of the dollar via-a-vis other major currencies, coupled by an increase in the number of operational oil rigs in the United States, according to Baker Hughes; a renowned service company. A development that could lead to a rebound in Shale Oil production

That said, the consensus among oil experts tilts towards the notion that demand is slowly gaining pace, with the globally oversupplied market giving in gradually, to the new reality. A median price of USD60 per barrel soon, should not be ruled out.

Jittery markets awaiting the outcome of the British Plebiscite could see the oil market fall or rise awaiting the final outcome. Some nail biting days lie ahead!

UK Flag Next to EU Flag - (Archives)