Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Hottest Sports Stock Of 2020 - 23rd Sep 19
Stocks Wedge At The Edge – Front And Center - 23rd Sep 19
Stock Market Top Almost Confirmed - 23rd Sep 19
Thomas Cook COLLAPSE! 300,000 Passengers Stranded, Flights Cancelled, Planes Grounded - 23rd Sep 19
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

How to Invest in the Esports Revolution

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

6 Critical Money Making Rules