MARKET WATCH: Greek financial tragedy pulls down energy prices

May 15, 2012
The drop in energy prices accelerated May 14 in a broad market selloff after political parties in Greece failed to form a new coalition government over the weekend.

The drop in energy prices accelerated May 14 in a broad market selloff after political parties in Greece failed to form a new coalition government over the weekend.

Energy commodities and equity stocks were down further in early trading May 15, with the euro falling to a 4-month low against the dollar after Greek socialist leader Evangelos Venizelos called for new elections next month. The Associated Press reported stock indexes in France, Britain, and Germany fell after Venizelos' remarks.

An estimated 70% of the Greek electorate oppose the proposed austerity programs required for the bailout of the country’s massive sovereign debt, yet about the same number wants to remain part of the Euro-zone with its common currency. The two positions are incompatible. Many fear another election will bring to power those opposed to the bailout conditions, which would result in expulsion of Greece from the Euro-zone and more turmoil in global markets (OGJ Online, May 14, 2012).

“The increased likelihood of a Greek exit from the Euro-zone drove a 1% drop in the Standard & Poor’s 500 Index for [May 14], with the most profuse bleeding in the financials and energy sectors,” said analysts in the Houston office of Raymond James & Associates Inc. Front-month crude dropped 1% to less than $95/bbl in the New York futures market. Natural gas fell 3% “due to concerns over weather-driven demand,” they said.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Oil products underperformed crude again, resulting in weaker refining margins. Ahead of the June Brent futures expiry tomorrow, the time spreads at the front end of the forward curve rallied very strongly. By contrast, the West Texas Intermediate structure came under strong pressure.”

Zhang noted, “The main concern of the market right now is still with a possible exit of Greece from the euro, which is far from resolved and will continue to haunt the market in the near term. Meanwhile, the market is also uncertain about the extent of the economic slowdown in China. Although the central bank has started easing policy by cutting the reserve requirement ratio, this type of stimulus tends to take time to turn momentum around.”

Nonetheless, he said, “Despite the relatively sharp decline in oil prices recently, implied volatility remained relatively low by historical standards, which in conjunction with the more attractive oil prices provides a good hedging opportunity for consumers.”

Energy prices

The June contract for benchmark US sweet, light crudes dropped $1.35 to $94.78/bbl May 14 on the New York Mercantile Exchange. The July contract fell $1.36 to $95.13/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.35 to $94.78/bbl.

Heating oil for June delivery declined 3.41¢ to $2.93/gal on NYMEX. Reformulated stock for oxygenate blending for the same month retreated 4.18¢ to $2.96/gal.

The June natural gas contract lost 7.8¢ to $2.43/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 4.9¢ to $2.41/MMbtu.

In London, the June IPE contract for North Sea Brent dropped 69¢ to $111.57/bbl Gas oil for June fell $16.75 to $934/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost $1.10 to $108.14/bbl.

Contact Sam Fletcher at [email protected].

About the Author

Sam Fletcher | Senior Writer

I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.