Oil Down After EU Agrees to Greek Deal

NEW YORK (DTN) -- Led by a rout in the gasoline market, New York Mercantile Exchange oil futures settled mostly lower Monday afternoon as the U.S. dollar strengthened while the euro fell after euro-zone creditors agreed to a bailout for debt-ridden Greece, raising concern the Federal Reserve would now feel free to raise interest rates in the United States.

The oil futures complex also came under pressure after Iranian nuclear talks dragged on in Vienna without any sign of a final deal emerging. Because the talks went past the July 10 deadline, any deal is now subject to a 60-day review by the U.S. Congress, which means delays for extra Iranian oil exports. Iran produced 2.8 million bpd of crude oil last year, down from 3.7 million bpd in 2011 when sanctions were imposed on Tehran, according to the Energy Information Administration.

The NYMEX August WTI crude contract settled down 54 cents at $52.20 bbl, off a three-day low of $51.26. The ICE August Brent crude futures contract settled down 88 cents at $57.85 bbl after posting a two-day low at $56.84, with the Brent premium over WTI narrowing 34 cents to $5.65 bbl.

In products trade, the NYMEX August ULSD contract was down 2.12 cents at $1.7187 gallon at settlement, off a four-day low at $1.6780. The NYMEX August RBOB contract plunged 7.69 cents to a $1.9396 gallon settlement, off a four-day low of $1.9371.

On Wall Street, equities were higher with the Dow Jones Industrial Average gaining 200 points on the day, while the dollar rose to a three-day high vs. the euro after the last-minute deal by euro-zone lenders to provide Greece with $95 billion in bailout funds in exchange for a three-year program of stringent austerity involving tax hikes, spending cuts and pension reforms that must still be passed by the Greek parliament by Wednesday.

The last-minute deal reached earlier Monday morning between eurozone leaders and Greek Prime Minister Alexis Tsipras must still be ratified by parliament, but the news spurred a relief rally in the broader equities market as it averted a Greek debt default and potential exit from the euro.

It comes after Fed Chair Janet Yellen said last week that a rate hike would come this year because the U.S. economy is picking up. The central bank has held back plans to raise rates amid fear over the Greek debt crisis and slowing growth in China.

“After the Greek deal, people got optimistic and started thinking the Fed will raise rates, but also demand for gasoline has peaked after the Fourth of July holiday weekend, which is why the physical gasoline market fell,” said analyst Phil Flynn at Price Futures.

He added, “Oil has been on a rollercoaster, moving back and forth, and not so sure whether to celebrate the Greece deal or to fear the coming Fed rate hike and the potential Iran deal. The market turned lower late [in the session] because of a strong dollar, though it would be supportive for oil prices and would offset the Greece deal if we don’t get Iran deal.”

The downside was curbed by a new report from the Organization of Petroleum Exporting Countries that boosted its outlook for global crude oil demand. OPEC said in its Monthly Oil Market Report for July that world demand for oil is expected to grow 1.34 million bpd in 2016 after a projected year-on-year increase of 1.28 million bpd in 2015. That reflects an upward revision of its demand forecast by 100,000 bpd versus a month ago.

Oil supply growth by non-OPEC countries for 2015 was revised up 220,000 bpd to 860,000 bpd for total supply at 57.39 million bpd. OPEC estimates U.S. oil supply growth at 13.85 million bpd in 2015, revised up 230,000 bpd from June.

George Orwel can be reached at george.orwel@telventdtn.com