Oil slips to three-month lows due to the Greek debt crisis, a potential new flood of Iranian oil and an ongoing stock market meltdown in China.
It is such a small word. Oxi. But the ramifications of three and a half million Greeks saying it over and over again on Sunday resulted in the biggest crash in oil prices since the start of the year.
They sunk by as much as 8% when the IMF’s debt bailout plan was rejected. US crude hit $52.53 per barrel down 7.7% from the week before – the biggest drop in a day since early February. Technical analysts fear a continued downside momentum could see it push at the six-year low of $42.03 in March.
The Greek PM Alexis Tsipras welcomed the outcome of the ‘No’ vote and immediately set about devising solutions in order to reopen the country’s banks which had been closed for more than a week after controls were imposed.
But the shutters are still up and queues at ATMs, where withdrawals are limited to 60 euros a day, are six deep as talks stuttered.
A three year bailout deal has been put forward, and Greece urgently needs approval on it or it is likely the ECB will pull the plug on Greece’s lifeline. Reuters says the process is clear – and was laid out during an interview on French radio when ECB Governing Council member Christian Noyer said, ““Our rules oblige us to stop immediately at that point when there is no prospect of a political accord on a program, or at the point when the Greek banking system crumbles — which would happen if it enters generalized default on all its debts.”
Many analysts and officials worry that a major Greek bank could soon fail. But Greek Labour Minister Panos Skourletis said the government believes banks can hold out until Sunday.
So Tsipras has been warned. “We have reached our limit of trust”, says the interim leader of New Democracy, Evangelos Meimarakis. Well, that might not be strictly true. Meimarakis went on to say, “I would say we have surpassed it but he is abroad and I should not.” Civility if nothing else is in abundance in Athens.
Speaking of trouble abroad, psychological games are being played in Vienna where another deadline has been missed in the talks aimed at resolving the 13 year standoff with Iran and its nuclear ambitions. Those of us who have worked in the Middle East understand the business of doing deals is not one done in haste – you must woo one another. To get to this point has taken almost two years of intense negotiations but when the western world expected sunny smiles, signatures and handshakes it is presented with rain, huddled cliques and furrowed brows. The deadline for a deal has been pushed yet again to Friday.
If these weren’t enough to trigger confusion and chaos in the oil market – news comes from China that could really ramp up the gravity of the global situation. As The Telegraph calls it, “China’s 1929” is the financial crisis we should all be worried about. There has been a 30% drop in the Chinese stock market – which equates to basically the entire economic output of the UK last year – and warning signs of a slowdown abound. The country’s securities regulator is speaking of “panic sentiment” among investors.
The reason we need to watch China closely is very simple. “If you look between 2003 and 2013 … half of all the growth in world oil demand was in China”, said Dan Yergin, a leading expert in international politics, energy and economics. “The Chinese economy has already been slowing from the growth that it had been before. The prime minister says it’s no longer high growth, its medium-to-high growth. And if it’s medium or low-to-medium growth, that’s a big hit for the oil market.”