NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower as part of a broader market selloff on Monday as the deepening Greek financial crisis raised concerns the turmoil could spread to other countries and oil demand may be undermined.
Investors also looked ahead to Tuesday’s deadline for a potential deal between Iran and six major world powers that would lead to the lifting of sanctions on Iran and result in the addition of more oil to the global market, which already has a glut of supply.
“The petroleum markets are under selling pressure as investors adjust to the weekend news on Greece, including the announcement of a July 5 referendum, the closure of banks, and the imposition of capital controls,” said analyst Tim Evans at Citi Futures in New York.
The NYMEX August WTI contract settled down $1.30 at $58.33 bbl, off a three-week spot low of $58.04. ICE August Brent futures settled $1.25 lower at $62.01 bbl, off a three-week low of $61.35. The Brent premium over WTI expanded 5cts to a $3.68 bbl close.
In products trade, the NYMEX July ULSD futures contract dropped 2.62 cents to $1.8366 gal at settlement, off a three-week low of $1.8191. NYMEX July RBOB futures settled down 1.82 cents at $2.0303 gal, off a two-day low of $2.0139.
Wall Street saw a massive selloff across many sectors, with U.S. equities tracking plummeting European bourses while the dollar reversed lower this afternoon after bouncing off a three-week high vs. the euro on the crisis in Greece.
German Chancellor Angela Merkel said the current bailout program for Greece will end at midnight Tuesday as scheduled and will not be extended as Greek Prime Minister Alexis Tsipras requested. She however discounted the risk of a contagion from the Greek crisis, saying there's no basis for creditors to give more money to Greece without an agreement.
Negotiations were underway on Saturday when Tsipras unexpectedly called a July 5 referendum on a new reform proposal from the creditors that he didn’t like. European Union leaders said today that by calling for the referendum without informing them, Tsipras not only unilaterally walked out of bailout negotiations, but also he “betrayed” their trust and “squandered goodwill.”
While Tsipras was urging Greeks to vote no in the referendum, Jean-Claude Juncker, president of the European Commission, urged Greek voters to vote yes because the vote would determine whether they remain in or leave the euro.
Greece won't be able to pay $1.8 billion owed to the International Monetary Fund on Tuesday, which would be considered a debt default that triggers an exit from the euro.
Greece shut down its banks today through next week to avoid the collapse of the banking system after the European Central Bank said it would not increase emergency funding to Greek banks. Greece imposed capital control today, with depositors limited to withdrawal of $66 per day while transfer of funds abroad is banned until after the referendum. Also, S&P cut Greece’s credit rating further to just three levels above fault.
Oil traders are also keeping a watchful eye on final phase of Iran nuclear talks which today entered its third day in Vienna. Bloomberg News reported that Iran nuclear talks would go beyond the June 30 deadline as negotiators try to hammer out a final deal.
Diplomats told Bloomberg News they were on the verge of a deal that could be signed in early July, allowing Western powers to ease sanctions on Iran but Tehran won’t be able to sell extra oil to the market until early 2016.
Domestically, the second quarter is drawing to a close and a time when book squaring can dominate trading direction, while the July 4th holiday will cut this week's trading short with most markets closed on Friday. AAA expects the most Americans since 2007 to travel more than 50 miles from home over the holiday weekend. But drivers are still poised to pay the lowest prices at the pump over the Fourth of July holiday weekend in at least five years.
George Orwel can be reached at email@example.com
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