The market started the week on an upbeat tone. After over a month of political uncertainty over Greece’s euro membership, the re-run elections gave pro-bailout parties sufficient seats to form a coalition government and avoid immediate bankruptcy and euro exit. Oil trades with volatility with the start of the week as focus on Iran negotiations offset Greek relief. Crude oil futures for July settlement are currently hovering around $83.85 down from the opening high of $85.20 to cover the bullish opening gap after it settled on Friday at $84.02 per barrel. Greece’s New Democracy widened its share in the re-run elections and secured 129 seats after securing the most votes. Syriza maintained the second slot with 71 seats, but now Pasok secured 33 seats which are enough for the two pro-bailout parties to form a coalition government with 162 seats. This offers interim relief for crude oil as the market unwinds the tension and the immediate stress that Greece was to be forced out of the euro in a messy bankruptcy. The euro gained on the news and equities turned higher which supported oil. The market now shifts focus to world leaders after the euro area miraculously escaped the first stress scenario. The G20 leaders gathering in Mexico today and tomorrow will intensify the pressure on Europe and call for radical effort and swift movements to contain the crisis with short-term measures still missing as the area sinks deeper into recession derailing the global economic recovery. Europe has pressured oil lower with different aspects, from the spreading tension from the debt crisis to the downside pressures of global growth as economic growth slows. Consumption remains weak as the global recovery slows and that is suppressing the gains for oil indeed. OPEC maintained its quota unchanged which further keeps supply ample and presses against prices south. We expect the relief to be short-lived till now with cautious eyes moving towards Iran and the new round of negotiations. The UN six powers start the two-day talks with Iran on Monday to try to end the gridlock over their nuclear program, which might be the last chance for Tehran before a new round of sanctions come into effect. Expectations for a breakthrough in talks are unlikely, which is keeping the pressure on crude oil for now amid fears that an escalation will again pressure prices to the upside. The clear focus on growth and the weak outlook for consumption is offsetting the tension with Iran. Any breakthrough in talks this week might be the EU’s last chance to delay the sanctions, as the oil ban will be effective July 01, and the EU foreign ministers will meet June 25 and hope for progress will be a cause for holding off the sanctions that will be more downside pressure on oil. We do not see any strong upside pressure expected from the talks or failure to break the stand-off over Tehran’s nuclear program. The focus is on growth and on the G20 summit and the FOMC this week that might be more stimuli for oil to resume the short-term relief. We still see scope for oil to move higher as the tension in the market unwinds but still do not see the return for the bullish wave just yet.

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