MC:Greece debt drama is downside risk to $100 oil: Survey
Oil prices will likely consolidate around USD 100 a barrel this week though any move higher will be capped by market uncertainty on what happens next in Greece.
On Sunday night, Greek leaders passed new austerity measures crucial to receiving a second bailout package, but violence in Athens marred the vote.
Financial markets are already skeptical about the 3.3 billion euro austerity bill, which involves deeply unpopular wage, pension and job cuts - the price exacted by Athens` international creditors in return for a 130 billion euro bailout, Greece`s second in two years.
Investors were rightly cautious - euro zone finance ministers wanted firmer guarantees, more conditionality and more austerity - a further 325 million euros worth - before any new aid could be disbursed. Last Friday, the SandP 500 posted its biggest daily percentage decline thus far in 2012.
Oil markets, however, seemed to take the headline volatility out of the euro zone largely in their stride. US crude futures settled at USD 98.67 a barrel on Friday, falling USD 1.17, or 1.2% but rising 83 cents for the week.
Brent crude closed at USD 117.31 on Friday, down USD 1.28, or 1.08%, ending an eight-day winning streak. For the week though Brent outperformed US crude to gain USD 2.73, or 2.4% while the transatlantic spread (Brent`s premium against US crude) stood at under USD 19 a barrel.
This week, consensus opinion in CNBC`s oil sentiment survey suggests the market will continue to shrug off negative headlines from Europe though any upside move will be limited. Out of ten respondents, 60% expect prices to rise, twenty percent expect prices to fall and the remaining twenty percent are calling for prices to remain stable.
"It will be risk-on, risk-off dependent on Greece," said Roger Nusbaum, Chief Investment Officer of Your Source Financial. "By next week, risk will be back on and it can go a little higher."
Optimists argue that fallout from the euro zone debt crisis - particularly on the balance sheets of the region`s banks - can be contained because of the European Central Bank`s unprecedented liquidity measures.
"Risk is back on, for now, as the fat tail risks of a Greek exit and European bank defaults diminish and liquidity measures from (Long Term Refinancing Operation) to QE3 should support the energy markets," said Shelley Goldberg, Director, Global Resources and Commodities Strategy at Roubini Global Economics.
Others are more cautious. Mark Waggoner of Excel Futures has a `neutral/lower` call on the markets this week and expects US crude futures to remain range bound between USD 96 and USD 101.50. "Dollar should start to rally once Europe problems seem solved," Waggoner said. "This will put pressure on crude. Europe will have a resolution, but will come up short, once again. This should bring us back down to USD 96."
