Brexit Only One Factor Facing Oil Prices

Regardless of whether Britain votes to leave the EU on Thursday, oil investors are likely to stay focused on how to counter the risk of further price slides.

Once global financial markets stabilize after the referendum result, analysts say the most likely near-term outlook for oil is decline, either through dollar strength against the pound in the event of “Brexit”, or through a renewed focus on oil supply and demand if Britain opts to stay in the EU.

The oil price has risen nearly 40 percent this year to around $50 a barrel, driven by unplanned outages around the world that have tempered a widely anticipated supply glut.

“Scenario A: there is ‘Brexit’, in which case we’re likely to see the commodities complex dragged down through the channel of a stronger dollar,” said BNP Paribas head of commodity strategy, Harry Tchilinguirian.

“Scenario B, there is a ‘Bremain’ outcome, in which case our scenario is basically an eventual shift in focus back to the fundamentals,” he added.

“Either way…it may be interesting to take up some insurance and buy downside protection.” BNP Paribas does not take a view on the likely outcome of the EU referendum.

Capital Economics chief economist and head of commodities research, Julian Jessop, says broader market reaction will depend on how much support a “leave” or a “remain” result has, but the response in oil is likely to be less nuanced.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza