Oil Prices Decline As Investors Await Results Of Negotiations In Greece And Iran

Oil has been the talk of finance for quite some time now. Late last year, a supply glut and lack of demand led to a collapse in the market; cutting the price of oil by more than half. However, this year, we've seen a slow and steady rise in the price of the commodity as lower prices caused weakening production and consumer demand to rise. Now, oil investors may have another big headwind coming their way as Greece looks like it will be leaving the Euro and nuclear talks with Iran seem to be hitting a brick wall. Today, we'll talk about how the Greece crisis and Iranian nuclear talks affect oil prices, and what we can expect to see moving forward. So, let's get right to it…

The Greek Debt Crisis

The Greek debt crisis is nothing new. Unfortunately, the country's economic fate has been incredibly uncertain for quite some time now. The reality is that Greece simply doesn't have the funding to avoid a debt default; and if talks with the EU don't work out, a default is imminent. So far, negotiations have hit a stalemate as Greek governments refuse to raise taxes and the EU pushes for a tax hike; and the deadline on debts is just days away. Greece must make a debt payment by Tuesday, June 30th to avoid a default. Unfortunately, that doesn't seem like it's likely to happen. So, where does oil come into all of this?

If Greece leaves the Euro, we can expect the value of the Euro to fall substantially; with the result rolling down to the price of oil. Essentially, a weaker euro when compared to the dollar would make oil prices much higher in European nations. As a result, demand for the commodity would fall in the Eurozone; causing even more of a supply glut. As the basic law of supply and demand states, when supply is up and demand is down, prices must fall; and that's exactly what's likely to happen.

Nuclear Talks In Iran

While the Greek debt crisis has the potential to drag oil prices down, there's another negotiation going on right now that has the potential to drive oil prices up; the nuclear talks with Iran. The United States and Iran have been in talks about nuclear capabilities after sanctions placed upon Iran keep 1 million barrels of oil off of the market. While politicians would love to see the United States and Iran come to an agreement, oil investors want to see the exact opposite. After all, if another million barrels of oil reach the market, it will only add to the supply glut. As a result, investors have been a bit hesitant with regard to pushing oil prices up as they wait on the results of these talks.

Nonetheless, it doesn't seem as though investors really have much to worry about right now; as talks aren't likely to lead to an agreement by the June 30th deadline. Ultimately, it doesn't seem as though the United States and Iran are any closer to an agreement than they were a month ago; exciting oil investors. Following the most recent news surrounding the negotiations, Michael Cohen of Barclays had the following to say…

“If there's no agreement with Iran, and that is delayed by a couple of months or at least even until September, then that's going to delay the re-entry of some of those barrels onto the market…People are getting very excited about this.”

So, Where Is Oil Headed From Here?

To be completely honest, it's a bit of a toss up. On one side, Greece's seemingly imminent exit from the Euro will potentially drive oil prices down as reductions in demand lead to a larger supply glut issue. On the other hand, it doesn't look like the talks between the United States and Iran are likely to produce positive results by June 30th; which will have a positive affect on oil prices. While there's no telling what will happen as these two major stories unfold, the way things are currently looking, I think that we're going to see a slight decline in oil prices over the next month or two. The reality is that while there is positive news for oil investors in the fact that Iran's oil isn't likely to hit the market any time soon, there's also negative news in the fact that Greece is more likely than not to decline; forcing an exit from the Euro. As always, it's important to remember that no one can tell exactly what's going to happen in the future. With that said, keep a close eye on oil because no matter what developments unfold, we're likely to see quite a bit of volatility over the next month or two.