Brexit’s Impact on Crude Oil Prices May Surprise You

Since mid-2014, excess supply cut crude oil prices nearly in half, bringing West Texas Intermediate (WTI) to below $30 a barrel in January of this year. In February, oil prices reached a turning point and prices have posted monthly gains ever since. That is, until Thursday June 23^rd, when a referendum saw citizens of the United Kingdom decide to leave the European Union. The gravity of the U.K.’s decision can’t be understated. Making up 17% of the entire European Union’s GDP, the U.K.’s “Brexit” is comparable to New York and Texas leaving the United States.

Oil Prices: End of the Rally?

On Friday June 24^th and Monday June 27^th, the global stock market went into a freefall and the oil price recovery showed serious signs of weakness, losing around 8% in two days—the largest two-day drop in five months. Though some are saying we’re headed back to sub $30/b oil, neither the fundamentals or the authorities seems to agree.

Three Factors will Keep Oil Prices on Track

Oil prices are impacted by a nearly limitless number of factors, including currency strength, supply, production levels, and demand. Some events have immediate short-term consequences—like Brexit—and others direct prices over the long term. On Wednesday June 29^th, oil prices jumped around 2%, a response to several short-term events:

• The threat of a strike by oil workers in Norway
• A political and economic crisis in Venezuela
• Increased summer travel in the U.S. and abroad, which will boost demand

Long-Term Outlook for Oil Prices Remains Positive

What matters more than short term outages and political strife are the fundamentals of supply and demand. As of June 29^th, the U.S. Energy Information Administration reported larger-than-expected reductions in crude oil inventories. Furthermore, the administration has forecast Brent crude oil prices averaging $43/b in 2016 and $52/b in 2017—with West Texas Intermediate (WTI) crude oil prices average slightly less, but still gaining over the next year. Despite the craze surrounding Brexit, crude oil prices are now rebalancing after near-historic lows. And this is good news for oil producers, drillers, the oil and gas industry, and the U.S. economy at large.

To get more waste and water industry news and insights, join our LinkedIn Group today!