Brexit rocks oil market; big questions remain

The British vote to exit the European Union, or Brexit, on Friday has sliced markets, sending oil prices crashing approximately 5 percent within the day.

An update posted on U.K. site The Week posits $45 oil prices following a sudden slide that has reversed gains on expectations earlier in the week that the EU referendum could have turned out differently.

Instead, the choice to isolate the U.K. is impacting markets in a negative way. Of course, oil is not the only commodity to take a hit, nor the only investment sector causing some nail-biting on exchanges, as the British pound dropped to its lowest value since 1985 as investors flocked to the dollar and the yen, with the New York Times trumpeting “turbulence and uncertainty” in regional markets.

However, some experts are holding out hope that the situation may not be as dire as it seems.

Peter Bryant is a managing partner at Clareo, a consulting company based on Chicago. Bryant has 30 years of experience advising companies all over the world, including global Fortune 500 companies, and is the author of "The Growth Champions - The Battle for Sustained Innovation Leadership," published in 2012.

“It's more a sentiment than a reality.” Bryant told the Gulf News Journal on Friday, describing the visceral responses to the Brexit.

Conceding that the sudden announcement has temporarily hurt markets, Bryant said there’s the very real possibility of changes, including a reverse in crashing prices, as national diplomats continue to study the decision.

“It will be a very slow unraveling.” Bryant said. “It may not be quite the exit we all expect … the break may not be as clean as it looks like now.”

Bryant also stressed the particular dynamics of the oil market and its positions with regard to mining.

The mining industry, Bryant said, is relying on low oil prices to make up for some extreme challenges including inefficiencies in operations. However, those who are banking on low oil prices should beware. Today’s prices, Bryant said, are not forever.

“The mining industry must not be lulled by the unsustainable positive impact of the currency shifts and lower oil prices – these are short term and do not address the underlying structural headwinds.” Bryant said.

In comments Friday, Bryant said leaders in the oil industry can also benefit from rapid innovation in that sector, which is delivering more versatile production capacity to oil producers.

Citing fracking, horizontal drilling and new software technologies, Bryant said savvy oil producers are able to offset some of the pain of lower oil prices.

“They're doing innovation fast to drive down cost.” Bryant said, citing a statistic from IHS showing that in 2015, a dollar of capital invested an in unconventional well produced 63 percent more oil and gas than it would have just one year before.

“That's a tremendous efficiency gain.” Bryant said.

All of this suggests that, as Saudis and others scramble to diversify their economies, the economic doom from oil price cratering may not be as dire as it seems today, and that everyone, including the hapless former EU partners, may have a second chance in the future.


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