UK referendum affects global oil prices

EU British referendum oil price BrexitOil prices fell sharply in the wake of the UK’s historic vote to leave the European Union on 23 June, in reaction to market volatility and fears of an economic slowdown

Nearly 52 per cent of the UK electorate voted in a referendum to leave the EU, triggering the resignation of Prime Minister David Cameron and sending shockwaves through the international financial markets.

Brent crude dropped six per cent on the morning of 24 June, its biggest fall since February, but rallied slightly to stand at US$48.44 at 11.40 am GMT.

Sterling fell 10 per cent to its weakest level since 1985, while the FTSE and other international stock markets tumbled.

Some analysts argue that the oil price drop is likely to be short-lived and that market fundamentals remain unchanged, signalling a recovery later in the year, as forecast by the IEA and other agencies.

Others argue that the oil price could still face further downward pressure.

“In the interim, it’s down for everything from equities to oil. Bad economies in the UK and Europe are not good for oil, and there could be a domino effect on other economies in Asia,” IHS oil analyst Victor Shum is quoted as saying to Reuters, adding that even if the dust settles soon, prices are likely to remain volatile.

While IG analyst Angus Nicholson was reported by CNBC as saying that oil prices could head for further losses, as uncertainty over the EU's future prospects brings the possibility of a global recession into focus.

Christine Lagarde, managing director of the International Monetary Fund (IMF), commented, “We take note of the decision by the people of the UK. We urge the authorities in the UK and Europe to work collaboratively to ensure a smooth transition to a new economic relationship between the UK and the EU, including by clarifying the procedures and broad objectives that will guide the process.

“We strongly support commitments of the Bank of England and the ECB to supply liquidity to the banking system and curtail excess financial volatility. We will continue to monitor developments closely and stand ready to support our members as needed.”

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