The full economic impact of Great Britain’s vote to leave the European Union won’t be known for months or even years, but the unexpected “leave” vote has roiled financial markets on both sides of the Atlantic.
For American drivers in pursuit of literal rather than figurative fireworks next week, the Brexit fallout could have an unexpected silver lining in the form of flat or even slightly lower gas prices.
“We could continue to see a trickle-down decline at pumps across the country,” Patrick DeHaan, senior petroleum analyst at GasBuddy.com, said via email.
Analysts don’t expect the impact to be big, but it’s likely that drivers might see lower prices in the short term as market jitters put a drag on what had been recovering gas prices.
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“I see it only as a modest impact, if that,” said Barbara Shook, senior reporter at large for the Energy Intelligence Group. “I see it in the pennies,” she said, but this new factor comes during summer driving season, when demand for gasoline is typically highest.
After hitting highs for the year earlier this month, gas prices had been ticking down a bit prior to the Brexit vote, and are about 47 cents lower than they were a year ago, according to the AAA.
“This comes at a time of the year when we do tend to see gas prices increasing,” said Avery Ash, director of federal affairs for the organization. “The expectation for right now is that it’s exerting downward pressure.” For every $10 the price of a barrel of oil changes at the wholesale level, the price of a gallon of gasoline moves about 25 cents, Ash said.
Oil analysts say that even a recession in the U.K. wouldn’t put much of a dent in global oil demand. A bigger factor could be skittish investors continuing to flock to the U.S. dollar. Although oil is a global commodity, it’s priced in dollars, which means a strong dollar means more expensive oil for the rest of the world.
“A stronger dollar and lower treasury yields in response to last night’s vote by Britain to leave the EU have driven gold prices higher and industrial commodity prices lower,” Goldman Sachs analyst Jeffrey Currie wrote in a research note Friday. “This price action is consistent with our view of a stronger dollar putting downward pressure on commodities despite supportive fundamentals.”
What analysts emphasize is that much of the current situation with the markets, energy markets included, is a knee-jerk or emotional reaction to an uncertain situation, rather than an overnight shift in supply or demand.
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“A lot of the messaging and analysis we’ve been seeing is that the impact is characterized by uncertainty,” Ash said. “We’re really not sure how this is going to ultimately impact global markets.”
“More important than the minor (thus far) impact on the national average is the psyche of Brexit,” DeHaan said.
Experts also point out that there are plenty of other potential wild cards in the mix that could raise oil prices, as well, from geopolitical instability to the weather.
As a result, any Brexit-related relief might be short-lived. “That would be negated by the first hurricane that blows through the Gulf of Mexico and knocks out a couple of refineries,” Shook said.
Even more pedestrian hiccups, like refineries out of commission for maintenance, could push prices up, experts say. “With demand still running high, any seemingly minor disruption could mitigate the decline,” DeHaan said.