Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Greek Vote: The Three Energy Aftershocks You Need to Know Now

Commodities / Energy Resources Jul 17, 2015 - 02:43 PM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: In the small hours of the morning, Athens time, the Greek parliament passed a tough set of reforms as the price for another European bailout. The aftershocks of this will be felt throughout the energy sector.

However, even this tough pill is not likely to be enough. The International Monetary Fund (IMF) reported on Monday that Greece may not pull through without an absolute reduction in the debt owed. Germany has already bristled over the prospect of a creditor “haircut” and the prospects of another round of negotiations has everybody fit to be tied on both sides of the conversation.


Whether European creditors like it or not, to avoid contagion to the rest of Europe we will need a contemporary version of the Brady Bonds that allowed emerging market (mainly Latin American) countries to refinance defaulted debt some four decade ago.

What happens next will fill the streets of Greek cities with angry citizens who voted a resounding “No” barely two weeks ago only to be force fed an even less palatable “Yes” by their own government. The deal passed only because opposition pro-Europe parties voted in favor of it. But the pact is even more onerous than the package of widely unpopular reforms rejected in the referendum.

It will also leave Prime Minister Alexis Tsipras and his ruling Syriza party without a majority in the legislature, virtually guaranteeing early elections and more political disarray. Some sort of national united front will emerge to govern, but the next several years are likely to be lean ones.

There are three major effects from this Greek drama that will affect the energy market.

Here’s my take on these aftershocks…

Lower Bond Yields Will Help Oil Producers

Some sectors of the Greek economy will undergo a managed contraction, assuming, of course, that the government actually honors the agreement made and the package passed this morning. Previous action (or, more properly, inaction) consistently put forward over the past five years makes compliance more than a passing concern. However, our primary investment interest – energy – is going to have some benefits coming.

First, the bailout package will provide relief on the wider European credit market. As I have noted previously here in Oil & Energy Investor, should Greece have defaulted it would have resulted in an elevation of interest rates, with high yield (i.e., “junk”) bonds rising faster than investment-grade debt.

Energy debt in general, and oil/natural gas production debt in particular, occupies the higher end of the junk bond market. That means the spread between interest rates would widen, with energy credit taking the brunt of that cost.

Now, the problem with energy debt is continuing even without a Greek enticement. But at least an immediate catalyst to an even worse situation is avoided. Companies are still going to be added to the prime M&A target list and projects will still be delayed. However, there will not be a feeding frenzy.

New Hope for Greek Gas Pipelines

Second, ongoing negotiations for natural gas pipelines passing through Greece (for which Athens receives some needed revenue from throughput and transit fees) will now be able to include expected domestic banking involvement and proceed as planned.

It will take a while for the Greek banking sector to be recapitalized and return to normal operations. There will also be fewer participants surviving. Nonetheless, it is essential that they participate, and the projects coming are far enough out to allow that.

The Greek Energy Companies That Will Weather the Storm

Third, and most importantly, there will be more immediate advantages provided for energy-related companies with direct access to outside hard currency proceeds. Once again, I have previously treated this matter here in Oil & Energy Investor, but it is useful to consider the specific situation that is now unfolding.

In times of such policy and financial transition, government moves depend upon foreign exchange. This would have been the case as well if a “Grexit” (a Greek withdrawal from the eurozone) had been the outcome. That scenario is less likely now, but still a possibility should this bailout fail.

Look to Greek tanker, shipping support, fuel bunkering, and offshore oil service/support companies to have the best shot of improving in the aftermath. All of these receive the bulk of their earnings from outside Greece, in hard currency, with access to European and global banking. That means they are likely to weather the storm with the strongest upside potential.

As Churchill famously put it almost 75 years ago, “This is not the end; this is not the beginning of the end. But it is the end of the beginning.”

As the smoke clears, I’ll explain how to play these developments.

Source :http://moneymorning.com/2015/07/16/we-have-tsipras-and-merkel-to-thank-for-this-market-crushing-profit-play/

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