Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How the Latest Greek Drama Will Affect the Price of Crude Oil

Commodities / Crude Oil Jul 01, 2015 - 10:52 AM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: In Greek history, there is a story that after devising the Athenian system of governance the great classical lawgiver Solon was walking down from the sacred council site of the Areopagus when he was greeted by another citizen.

“Well, Solon, did you give Athens the best constitution possible?” the fellow asked.

“No,” Solon responded. “I gave her the best constitution she could accept.”


It seems politics in the cradle of democracy haven’t changed much in the last 2,500 years.

Take the current (and soon to be former) Greek Prime Minister Alexis Tsipras as a good case in point.

His Syriza party currently “anchors” the government in Athens. Essentially a coalition of the far left in the Greek political spectrum, it rode into power on a wave of popular anger over debt and creditors.

This populist government has now broken off negotiations with creditors. Greece will certainly miss its interest payment to the International Monetary Fund (IMF) due today and will not be able to make the larger payments to the European Central Bank (ECB) scheduled over the next month.

Here’s my take on how this Greek drama will play out… and affect the energy markets…

Tsipras Will Leave an Unusual Legacy

Some of this anger was understandable and not particularly unexpected. The Greek people have had a miserable go of it over the past several years as austerity budgets, rising unemployment, the lack of any coherent fiscal and monetary policies, and declining genuine investment expectations cast a pall on the country.

I saw some of this a while back when I was in Athens to talk about the relationship between debt and oil prices (more on that in a moment). There was a roughness forming in the streets while the graffiti adorning public buildings was becoming confrontational.

Tsipras played to all of this by running a populist campaign.

Unfortunately, in the five months he has been in office, his cabinet has done nothing. A left-wing farce all dressed up like a government has managed to fragment its own political base, develop no policy, negotiate in bad faith (when they weren’t simply walking away from the table altogether), and put a country on the brink of an economic disaster, along with an exit from the euro zone and perhaps the EU itself.

In response to all of this, Tsipras blamed outside creditors (one populist ploy) and decided to let the people decide the matter in a referendum to be held on Sunday (another game of populist chicken).

As the final nail on the coffin, banks and the stock market are closed, along with the introduction of severe capital controls limiting withdrawals while making normal cross-border business almost impossible.

Even if he wanted to compromise at this late point, Tsipras can’t. He has painted himself into an inescapable political corner.

Indications are that over 60% of the Greek population want to remain in the EU and the euro zone. If that holds up in Sunday’s vote, Mr. Tsipras will resign, leaving as his legacy for five tumultuous months something unusual for a politician of any persuasion:

Absolutely nothing.

The Impact on Oil Prices

This mess should never have made it this far.

It will have an impact on oil prices, more pronounced the longer the situation remains unresolved. There are three primary concerns, all of which are pushing oil lower. Once any sort of resolution emerges, oil prices will bounce back. But the longer that takes, the more volatility will increase.

First, as the euro declines against the dollar – a certainty as the Greek economy unravels – it will be more expensive for Europe to buy oil. That trade is denominated in U.S. dollars. A declining euro, therefore, increases the cost of oil, effectively lowering demand. It is the lowering demand that will serve to push prices lower.

Second, European banking credit is in far better shape than it was the last time Greece threatened to implode. The ECB’s policy of quantitative easing, the buying of distressed bonds, and the level of bank reserves are major bulwarks against immediate contagion. Here other “weak sisters” in the EU southern tier become primary concerns – Italy, Spain, and Portugal. The amount of debt currently in question for Rome or Madrid dwarfs the ledgers at issue in Athens.

However, while the euro can be protected, a further rise in debt yields cannot. Put simply, this will add to the spread between investible bonds and high-yield (i.e., junk) paper. Energy company issuances occupy the highest levels of high-yield debt, requiring a premium paid over other bonds. This will increase the expense of conducting oil business and the cost of running futures contracts on the product. That will cut into return and lower the attractiveness of oil.

Finally, the broadest and most difficult result to calculate. The rising economic and financial uncertainty descending on a wider continent will factor into projections of economic recovery (or the lack of it). As these are adjusted downward, so also will broad indicators of crude oil demand. And that pushes down oil prices.

However, while the drama in Greece will lower the price of oil in the short term, the price will recover in the longer term as the situation is resolved.

I will follow these developments for you. Stay tuned for more.

Source :http://oilandenergyinvestor.com/2015/06/how-the-latest-greek-drama-will-affect-the-price-of-oil/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in