Oil zoned out late in the trading session on an admission from former Greek Prime Minister Lucas Papademos who dared suggest that preparations for an exit from the Eurozone are being considered. This of course would be expected but to hear the architect of the first big Greek bailout agreement and noted economist admit it in public, is really something else. It had not been polite in European leadership circles to mention even the nearly unfathomable possibility of a Greek exit yet recently it seems that reality may be sinking in.
For oil that gives us a sinking feeling. Not only will the Euro initially tank on that speculation, the dollar will rally as safe haven seekers will run to the greenback for safety. Oil demand will also become suspect as fears of contagion may have a deflationary impact on price. Worries about the strength of European banks then would freeze lending perhaps, and energy demand would dry up. Or at least that is what the moves in oil is signaling and has for some time, not to mention other commodities. Can the EU find love, happiness and stability after a Greek exit! Traders are not willing to wait around and find out.
Of course oil is watching with fascination the latest agreement between the international atomic energy agency and Iran. While most believe that this last minute agreement by Iran is to put their best foot forward ahead of the talks with Western powers regarding their nuclear program, it is obvious to everyone - except maybe Iran - that already this showdown has done long term damage to the energy industry.
You see as it became clear to European and Asian customers of Iranian crude that they would have to replace that crude and they are finding out that Libyan and Iraqi crude oil works just as well. Iran may lose market share long term and even if the European embargo is lifted, they may have a hard time getting those customers back. Why deal with a wacko regime that is only going to give you uncertainty when you can buy oil from an up and coming democratic producer like Iraq.