Oil
falls on Greece vote, China stock market turmoil
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[July 06, 2015]
By Christopher Johnson
LONDON (Reuters) - Oil prices fell sharply
on Monday after Greece rejected debt bailout terms and as China rolled
out emergency measures to prevent a full-blown stock market crash,
adding to worries about poor demand growth at a time of global
oversupply.
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The result of Greece's referendum has put in doubt its membership in
the euro, pulling down the single currency against the dollar.
A strong dollar tends to pressure commodities as it makes fuel more
expensive for holders of other currencies.
Commodities were also sucked into market turmoil that has seen
Chinese shares <.CSI300> fall as much as 30 percent since June due
in part to an economy that is growing at its slowest pace in a
generation.
Chinese brokerages and fund managers have agreed to buy massive
amounts of stocks to support markets, helped by China's state-backed
margin finance company, which in turn would be aided by a direct
line of liquidity from the central bank.
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"Uncertainty over Greece is bearish for oil. It adds an extra
negative factor on top of the turmoil in Chinese financial markets,
the recent rise in U.S. drilling rigs, and a potential increase in
Iranian oil supply," said Olivier Jakob, senior energy analyst at
Petromatrix in Zug, Switzerland.
"The main implication is for euro/dollar and I think it will put
additional pressure on the euro," he added.
Benchmark Brent crude oil fell $1.42 a barrel to a low of $58.90
before recovering a little to around $59.00 by 0925 GMT. U.S. light
crude fell as low as $54.34, down $2.59 from its close on July 2.
July 3 was a U.S. holiday.
The falls left both crude benchmarks at their lowest since
mid-April.
With markets already nervous due to the turmoil in Europe and China,
fundamentals were also bearish.
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U.S. drilling increased for the first time after 29 weeks of
declines, the strongest sign yet that higher crude prices are
coaxing producers back to the well pad.
Production in Russia and the Organization of the Petroleum Exporting
Countries is also at or near records.
"Demand is good, but supply is better," said Bjarne Schieldrop,
chief commodities analyst at SEB in Oslo.
Putting further pressure on oil markets is a possible nuclear deal
between global powers and Iran, which could add more oil to
oversupplied markets if sanctions are eased.
"Reports increasingly suggest a deal is likely before July 9,"
Morgan Stanley analysts said in a report.
(Additional reporting by Henning Gloystein in Singapore, Aaron
Sheldrick in Tokyo; Editing by Dale Hudson)
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