Political irresponsibility leads to death. Riots in the streets of Athens lead to murder and fears that the Greece bailout and austerity plan are on shaky ground and this has oil bulls running for cover.
Global financial markets got rocked as the market fears that the Greece plan to push through drastic economic measures is in jeopardy as chaos in the streets of Athens and resistance from some EU members to approve a massive and growing bailout hang in the air. Some rioters threw a gas bomb setting a bank on fire leading to the deaths of 3 bank employees. Greek Prime Minister said that the “unjust” deaths were a “murderous act” and that, “This is where uncontrolled violence and political irresponsibility leads us”. Political irresponsibility also leads us to market uncertainty. While the markets want to believe that the Greece crisis will somehow go away, the TV footage of the riots makes us realize that this is not going to be easy. The Euro continues to get smashed, hitting the lowest level since March and the dollar soared as oil traders tried to drive oil below $80 a barrel and keep it there. The question is, can they keep it going?
Oil has sold off many times on the Greece debt crisis only to rebound when the market is duped into believing that the crisis has passed. Over night Spain had what could be called a successful auction of a five-year bond. That may ease some fear of contagion yet still one wonders if the EU had a hand in buying some of that debt or are there other unnamed countries intervening to restore confidence. The EU is showing frustration and hope. The Wall Street Journal reported that European Commission President Jose Manuel Barroso said Thursday he is confident that all Eurozone countries will back the joint Eurozone and International Monetary Fund bailout package. "I hope so," Barroso said. "I am sure they will all accept it because it is in their interest." Barroso said that by helping Greece, "we are helping ourselves." Meanwhile the ECB, as expected, kept rates steady.
The steep drop in oil makes us oversold but it is harder for the market to ignore the supply side of the equation. The EIA reported that U.S. commercial crude oil inventories surged by 2.8 million barrels putting supply at a hefty 360.6 million barrel which is 5.4% above the five-year average. Total motor gasoline inventories by increased by 1.2 million barrels last week putting them7.6% above the five-year average. Distillate fuel inventories increased by 600,000 barrels and are 27.6% above the five year average. Hefty supplies should keep us anchored unless panic again grips the marketplace.
Crude oil and the products could be on the verge of a major breakdown though it may be too early to just jump in. With volatility rising and sizable swings, the range may be the best way to play the market. Oil needs to close below $79 and that should open up a swing towards $69. If we close below $69 that might mean that the upside breakout was negated and could leave the door open for a major and long lasting correction.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.