Oil prices tumbled Monday as Greece officials reportedly said the country wouldn’t pay its debts to the International Monetary Fund a day before its deadline to avoid a default that could slam European financial markets and upset the oil market’s recent calm.
The Wall Street Journal reported the Greek officials comments mid-day Monday. A weakened euro, which lost value against the dollar Monday, helped send crude close to monthly lows, as a stronger dollar makes it more expensive for international buyers to purchase dollar-denominated crude. The recent price declines come after two months of relatively stable $60 oil.
Meanwhile, oil traders were also absorbing reports that Iran and western nations have made progress in negotiations that could put Iranian crude back into circulation, which could deepen a global crude glut that has sent prices down since last summer.
U.S. crude fell $1.13 Monday morning to $58.50 a barrel on the New York Mercantile Exchange, its lowest since June 8. It has fallen $2.25 a barrel since last Tuesday. Brent, the international standard, slipped $1.23 to $62.03 a barrel, its lowest point since June 5, on the ICE Futures Europe. That’s down as much as $2.42 a barrel since last week.
Late Sunday, Greek banks shut down to prevent a massive run on the country’s financial system, two days before Greece was due to pay back debt to the International Monetary Fund. Analysts say Greece risked overcoming the growing rift between it and the rest of Europe when it scheduled a referendum next Monday on concessions and capital controls that its creditors want the Greek government to make to ensure its financial stability.
“The crisis in Greece is weighing on the oil market even though Greece’s participation in the oil market is small,” said Andy Lipow, president of Lipow Oil Associates in Houston. “The concern is as the economy falters further in Greece, it could have a knock-on effect in other places in Europe.”
In Vienna, United Nations Security Council and Iranian negotiators are getting closer to finalizing a potential deal to put constraints on Iran’s nuclear program in exchange for the lifting of three-year oil export sanctions, a European Union official said Sunday, according to Bloomberg. An Iranian nuclear deal could knock down oil prices by about $5 a barrel and make it tougher for U.S. producers to recover from the past year’s oil slump, Lipow said.
Even though the oil market has been steady since late April, after several months of volatility, “the road remains rife with hazards,” Barclays analysts wrote Monday. “A possible misalignment of Iran’s return, shale’s decline, Chinese stock building, the end of driving season and refining turnarounds might lead to downward price pressure.”