Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

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.


© 2005-2019 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