The decision by 52% of the voters in the EU referendum last week to vote to leave the EU has had far-reaching impact across the globe. The oil and gas sector, bruised from nearly two years of low oil prices, is bracing itself for the fall out.
The immediate impact of the referendum outcome was a plunge in the value of the pound to a thirty-year low of $1.34, significant falls in all of the world’s stock exchanges and the price of Brent tumbling 5% to $48/bbl.
The greatest risk to the energy industry is surely a global economic slowdown, which would suppress oil prices for longer and delay investment in exploration and production. In the short-term, however, UK-listed oil companies such as Shell, BP and Tullow have fared (comparatively) well since the decision was announced – with a large proportion of dollar-denominated revenue from abroad the devaluation of Sterling actually benefits these companies and they will see in a boost in reported revenues as a result. The end-user at the pump in the UK will, of course, see the opposite effect for the same reason – we import a significant proportion of the oil we consume and prices will rise as a result of the exchange rate movement.
For now, we are left with a perception of risk generated by uncertainty over what ‘Brexit’ actually means. The negotiations on our exit are yet to happen and the timetable and extent of the UK withdrawal are yet to be seen. The Prime Minister has made it clear he will not trigger Article 50 of the Lisbon convention himself and will leave it for the next leader. Despite the outcome of the vote it remains entirely possible that the government (largely pro-Europe) will deliver a ‘Brexit-lite’ outcome or even no Brexit at all.
Steve Robertson, Research Director, Douglas-Westwood
+44 (0)1795 594734 or [email protected]