Oil prices fell over 6% this morning after Britain’s surprising decision to leave the EU. The British Pound reached 30 year lows today as a result of the “Brexit,” while the U.S. Dollar enjoyed strong gains. The big unknown is how this will influence the UK’s economy. For now, analysts will try to figure out how the Brexit will impact global relationships, interest/mortgage rates, currencies and of course oil prices.
Nicola Sturgeon, Scotland’s First Minister has just released word that Scotland is “highly likely” to vote on leaving the United Kingdom, now that it is no longer a part of the EU. 62% of Scottish votes were in favor of staying a part of the EU.
How will this impact the United States?
Since the value of the dollar is increasing, this could push U.S. mortgage rates even lower. According to Steve Rick, chief economist of CUNA Mutual Group, "This would create another mini refinance mortgage boom at financial institutions as homeowners rush to lock in near-historic low interest rates."
One might say that having a strong dollar is a good thing. To that person, I would say that’s true in many respects, but keep in mind that an even stronger dollar could hurt the profitability of our exports. If the value of U.S. currency is significantly stronger than other countries, then there is a lesser chance that these countries will want to buy from us due to the high premiums which they would have to pay. In turn, this could hurt the US manufacturing industry, since there will be cheaper options elsewhere. Why buy an apple from Joe for 5 dollars when you can buy the same apple from Bob for 1 dollar? As corny as that example is, it is the absolute truth.
As of 10:20 a.m ET, the NYMEX is down approximately 5 cents on Heating Oil, 6 cents on RBOB and two dollars on WTI crude.
In other news:
According to The Wall Street Journal, some market watchers are warning that prices could fall even further as investors who bet on higher oil prices in recent months close out their bullish bets.
Saudi Arabia says supply glut is over.
US Rig Count is due out later today.