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Oil prices break the 100-day moving average

Both Brent crude and West Texas Intermediate (WTI) saw a sharp fall on July 6, 2015, resulting from a variety of negative factors. WTI closed at $52.71, a 7.5% drop, while Brent tumbled 8.5% to $56.81. Both the international and U.S. benchmarks broke below the 100-day moving averages.

The WTI drop is the steepest since February 4’s mark of 8.5%, when an inventory build of more than 6,000 MBO and a week-over-week demand decrease of nearly 10% sent WTI below the $50 threshold.

Today’s slide in oil prices came with news of Greece rejecting the terms of a financial bailout, increased concern over Hong Kong’s stock markets, and the preparation of more oil supply from Iran as the P5+1 work toward a nuclear agreement continues.

The people of Greece voted against a referendum on an international bailout, putting its membership in the Eurozone in doubt, reports Reuters. The euro weakened against the dollar, weighing on demand for dollar-denominated commodities for holders of the single currency.

While concerns over the potential exit of Greece from the Eurozone intensified, so too did worries over the Chinese stock market. Hong Kong’s Hang Seng Index fell 3.2% Monday, its worst one-day performance since 2012, reports The Wall Street Journal. The Index is down 11.3% since its April high.

“The sentiment is really bad amid concerns over not only the problem in Greece but also the problems in the mainland China stock market,” said Dickie Wong, executive director of research at Hong Kong-based brokerage Kingston Securities.

“Given the ‘No’ vote in the Greek referendum and the latest developments in the mainland A-shares market, there may be increased volatility in the Hong Kong markets,” said Hong Kong Monetary Authority in a statement.

Increased supply adding to concerns

As the United Nations’ five permanent members and Germany (P5+1) continue to work with Iran on a nuclear deal that could lift sanctions, more supply could come back on the market, pushing oil prices further down. Many analysts expect that Iran could export approximately 500 MBOPD by the end of the year if sanctions are lifted.

A report from SVB Energy International says that increased Iranian exports would cause “more of a psychological impact on the market and the prices rather than an actual effect,” the deal would have an immediate and negative effect on oil prices, even before any actual Iranian production rise.

Production in the United States may also put pressure on oil prices as the number of rigs drilling for oil increased for the first time in 29 weeks last week, according to information from Baker Hughes (ticker: BHI).

All of these taken together paint a bearish picture for oil prices. Olivier Jakob, Senior Energy Analyst at Petromatrix, told Reuters “[The Greek referendum] adds an extra negative factor on top of turmoil in Chinese financial markets, the recent rise in U.S. drilling rigs, and a potential increase in Iranian oil supply.”

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