How is the Greek Election Affecting the Price of Oil?

As expected, the results of the Greek Elections has had a major knock-on effect around the world, less than a week after the anti-austerity party Syriza was announced victorious. Whilst there are many anticipated changes on the horizon, especially concerning the European Union and the Euro itself, one of the most immediate effects was a further fall in oil prices.

Is Greece to Blame?

The reason for the immediate and major effect on oil prices came from the sudden jump of the dollar against the Euro. As a result, dollar-denominated oil suddenly became more expensive for European customers and dampened the demand for it.  

Prices dropped "as further details of the Greek election outcome emerge", said Kash Kamal, Analyst at Sucden brokers. Many are wondering what effect the new government is likely to have on the world market and global finances, especially as the Syriza party has made no secret of their wish to leave the Eurozone, to renegotiate the terms of their repayment deal with the EU and the International Monetary Fund and the party’s famous anti-austerity stance.

Other Factors

The significance of the power shift in Greece is of course a major factor in oil prices, especially where it has such a volatile affect on the Euro. However, there are a further number of reasons why oil prices have fallen and continue to do so.

The falling price of crude oil is nothing new. In fact, data shows that prices began to fall back in June 2014 and have now reached a price per barrel of an average of half their original price. It’s thought that the long term reason for this is supply simply outstripping demand.

This phenomenon is already being tackled by the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, who last November decided to maintain their output levels in spite of the oversupply.

It’s also no secret that in recent weeks there has been much turbulence in the traditional oil producing states, including the death of King Abdullah bin Abdulaziz Al Saud, which has almost certainly had a large affect on prices and market stability. Add in the poor weather conditions for much of the United States, which is expected to affect flights, transport and productivity, and it seems that although Greece might be making waves in the world economy, they’re not the only factor.

Who benefits?

While lower petrol prices is of course a benefit to consumers, how will the oil industry respond if the price of a barrel continues to plummet beyond the current 40% drop the industry has experience since June 2014? We answer that question and more in: What Are the Pros & Cons of Plummeting Oil Prices?