Dubai: Oil prices are expected to trade lower this week when international markets open on Monday for the first time since the United Kingdom’s surprise decision to leave the European Union sparked a sell-off on Friday.
Analysts say that uncertainty and a rallying dollar will push crude prices down. They fell about 5 per cent on Friday over concerns for global growth.
Global benchmark Brent settled on Friday down 4.9 per cent, or $2.50, at $48.31. US crude fell 5 per cent, or $2.47, to $47.64 a barrel, in what was its biggest single-day drop since February.
Emirates NBD chief investment officer Gary Dugan told Gulf News on Friday that oil could fall to $43 this week.
The unprecedented vote has generated a new level of uncertainty and there are fears it could drag the British and European economies into recession.
Oil prices will be “bearish until the dust settles,” Alp Eke, senior economist at the National Bank for Abu Dhabi (NBAD), told Gulf News by email on Sunday.
The pound fell to a 31-year low on Friday before recovering to close 8 per cent down after British Prime Minister David Cameron, who campaigned to stay in Europe, announced he would step aside by October. Meanwhile, the dollar index rose 2 per cent as investors switched to risk averse assets.
Short term
A strengthening dollar is likely to suppress oil prices as they and other greenback denominated commodities become more expensive for foreign currency holders.
“It is going to be negative for the oil market in the very, very short term,” Edward Bell, commodities analyst at Emirates NBD, told Gulf News by phone on Sunday.
It is unclear what will be the next step for the UK-EU break-up. Cameron has said he will leave it to his successor to invoke Article 50 of Treaty of Lisbon, which is needed start unravelling the relationship.
Shwan Zulal, director of London-based Carduchi Consulting, told Gulf News on Friday that contagion of the British vote was now a big risk factor for oil prices. Politicians in France, Italy, Netherlands and Denmark have called for their own vote on EU membership.