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Greece’s payment due tomorrow, commodities and markets fall by roughly 2%

Greece is careening closer to default, and the world markets are taking cover.

Brent closed at $61.87 on June 29, 2015, reaching an 11-week low, while West Texas Intermediate fell to $58.33, its lowest since June 8. The Dow Jones and NASDAQ fell by 1.9% and 2.4%, respectively.

For the second time in only three weeks, Standard and Poor’s downgraded Greece’s credit rating. This time to CCC-, or “outlook negative.” The firm expects a commercial default is inevitable within the next six months unless there are “unanticipated favorable changes in Greece’s circumstances.”

Greece will default tomorrow to the International Monetary Fund if it is not granted an extension. S&P said though failure to make Tuesday’s IMF payment wouldn’t constitute a commercial default under its criteria, it is a legal event of default under a December 2012 agreement between Greece and the European Financial Stability Facility.

Greece Citizens Scramble for ATMs Before the Banks Close Photo Credit: CNN

Greece Citizens Scramble for ATMs Before the Banks Close
Photo Credit: CNN

S&P believes there is a 50/50 chance that Greece exits the Eurozone entirely.  Analysts on cable news outlets were looking at the broad effects, one predicting that the UK might exit the EU as a result of the Greek angst. Other reports today highlighted yet another country on the verge of default – Puerto Rico.

Brent Might Revisit the $50s: SEB

Nobody is exactly certain of the full repercussions of a Greece default, but it is resulting in increasing uneasiness among global commodities and stocks. A default would drag down the value of the Euro, causing the U.S. dollar to appreciate against its peer currency. Since oil prices are measured in dollars, a stronger dollar would apply even more downward pressure on Brent and WTI. The Euro rose by the close of markets in Europe vs. the dollar, with reports of the Swiss being in the market as a buyer of Euros.

A damaged Eurozone would also decrease demand in an already oversupplied market. Additionally progression with Iran’s sanction talks also offer the possibility of additional oil exports if a nuclear deal is reached with Western countries and unlocks the market again for the OPEC nation. Additionally, the combination of stabilizing rig counts and declining inventories in the United States suggest the oil market trough may have been reached.

“This may be the time when we break lower and into the $50s for Brent as we have a full week of uncertainty,” said Bjarne Schieldrop, head of commodity analysis at SEB in Oslo, in an interview with CNBC. The more drastic drop for Brent, relative to WTI, shows the strain of the Greece talks and their effect on the European economy.  Brent hasn’t traded below $60 since April.

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