Oil Market Report: May 2016 – EU Referendum Special
With the EU referendum now less than 3 weeks away, we are looking at “Brexiting” and the impact it could have on the oil industry? It would be naïve to think that the oil industry could come out unscathed on the back of such a big political decision. But then again, this is oil and any potential weakening of the £ is certainly one area where the oil market in the UK would be affected.
Since 2015, the value of the £ has gone down from an average of $1.53 per £ to a (YTD) figure of $1.43, with some observers predicting further drops in the final days before the 23rd June vote. Drops in currency value rarely appear to be dramatic, but in fact, a 0.1 $ / £ fall associates to a 7% devaluation, which in turn generates a fuel price increase of 1.5 pence per litre. For a 50 truck haulage firm, that equates to a £40K pa increase in costs - significant for a sector where margins are wafer thin. “Remainers” have used the currency weakness dispute as a good reason to stay in the EU, but when you look into it, couldn’t the current £ weakness simply be a result of all the uncertainty surrounding the Referendum itself? It’s likely that once the Referendum vote has been resolved either way, the £ will find its own natural value in the market? What's more, if the £ is to weaken, it could be good news for the refining industry who produce in £ (ie, local costs), but sell in $ - so they would likely benefit from a weakening of the £GBP.
Another credible concern for leaving the EU is for the UK fuel companies who could be affected by the possible restrictions in the free movement of labour and the potential future inability to easily recruit EU nationals.
Experts are predicting that should Britain vote to leave the EU, it's likely that this will bring on another independence referendum by Scotland , which could lead to a significant upheaval for the UK’s Oil & Gas industry.
Ultimately it’s difficult to predict what the pro’s and cons will be to the oil industry whether we decide to stay or leave the EU, but it’s clear that the referendum will impact every industry, company and resident in the UK so make sure you do your revision, and make your vote count.