Questions remain about likelihood of Brexit says Douglas Westwood

Industry news

The possibility remains the United Kingdom’s Brexit from from Europe may not happen after all, according to consultancy Douglas Westwood.

The oil and gas sector, bruised from nearly two years of low oil prices, is bracing itself for the fall out and last Thursday vote has seen Brent crude trading at around $48dollars per barrel as the markets reacted to the shock referendum result.

The pound was trading at a generational low of $1.32 this morning and declined against other major currencies.

Douglas Westwood’s research director Steve Robertson, in a weekly briefing, said it remained to be seen what shape and form the UK Government the would implement the country’s exit from the EU.

Robertson said: “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.”

Robertson said the greatest risk to the energy industry is 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.”

Douglas Westwood’s Aberdeen-based managing director Andrew Reid, wrote in Energy Voice on Saturday: “There will undoubtedly be a number of “Brexit” implications for UK oil & gas, however, the current low oil price environment is likely to play a far larger role in shaping the form and structure of the UK energy industry over the coming years.”