SINGAPORE (June 26): Oil prices weren’t spared after the UK voted for Brexit on Thursday, with West Texas Intermediate (WTI) crude falling by more than 5% to US$47.56 a barrel. Spooked by the renewed uncertainty now surrounding the global economy, investors fled for safety by moving funds into US dollar assets, which pushed down the price of oil.

With the UK now at risk of recession, markets are now expecting that global demand and GDP growth will come under pressure. That, in turn, could keep oil prices subdued or trending downwards. “To the extent that GDP growth dissipates, crude oil prices could again suffer,” writes Stewart Glickman, an analyst at S&P Global.

Oil prices could also be impacted by disruptions to demand from the eurozone, which consumes some 15% of global crude oil supply. According to S&P estimates, Brexit could potentially compromise up to 0.5 percentage points of the region’s GDP growth in 2017.

On the other hand, the drop in oil prices may well be the result of a temporary flight to safety in the market and represent a good opportunity to pick up some good quality oil and gas stocks. “The past few months have seen a near-doubling of WTI prices to US$49 a barrel from their February lows and the rising tide had lifted virtually all [stocks],” writes Glickman.

Glickman advises investors to look for larger players which are better able to withstand weak crude oil prices for longer. These include ExxonMobil, Chevron and Occidental Petroleum, all of which run upstream operations as well downstream refining businesses.

“Vertical integration is a nice feature to have when crude prices are hurt by macroeconomic surprises, since other parts of the energy value chain are less adversely affected when crude prices fall,” writes Glickman.

“Importantly, all three look to generate strong free cash flows in 2017, and all three have relatively low net debt-to-capital ratios as well, in the 10% to 15% range,” he adds.

Still, Glickman says investors should keep a close eye on oil prices to gauge if the recent drop is set to continue over the longer term, or if it is just a temporary dip.