Oil investors can’t catch a break…
On Friday, while most Americans enjoyed a day away from the office to see family and prepare for their Fourth of July celebrations, Baker Hughes released its weekly rig count numbers.
For the first time in 29 weeks, the oil rig count in the U.S. rose — this time by a count of 12.
After the bear market gutted U.S. crude oil rigs, the number jumped last week because of new additions in the Eagle Ford and Permian Basin.
Total U.S. rigs (this includes natural gas) only rose by three, as natural gas companies shuttered nine rigs amid low prices.
Still, the news was welcome for oil investors, as more rigs means more production and profit and is a good omen for what many hope is a healthy recovery from the lows of the bear market.
Unfortunately, oil investors have to wait.
It seems as though every bit of good news comes with a heaping dose negative press and price movement.
The latest blow to oil investors came early this morning as markets reacted to Greece’s referendum.
Of course, this recovery is a process, and we can surely find a silver lining…
Greece Oil Shock
Now, personally, I’ve tried my best to keep my head above all this news on the Greece bailout revolving door.
Every day it seems as though there’s a bout of new headlines about Greece being doomed or the country’s salvation, as media outlets capitalize off of clicks.
But like most clickbait, the Greek articles usually hold little substance for us to ponder, and I’ve avoided most of it… until today.
Yesterday, Greece’s citizens voted on a referendum that would decide whether the country would accept a deal outlined by its European creditors.
As you see above, Greece is in the hole for 323 billion euros, most of which belongs to Germany and France. Thus the two governments had instrumental roles in drafting the deal.
Another bailout would’ve included emergency funding to keep Greek banks open, but it also would’ve strengthened much-hated austerity measures in Greece and raised taxes for the country’s already overtaxed populous.
On Sunday, Greece voted resoundingly to reject the bailout program. Over 60% of voters in every Greek state voted no:
As you can see, not a single state voted in favor of the deal, as Greek President Alexis Tsipras and his leftwing Syriza party campaigned against the bailout plan.
Syriza was voted into power earlier this year as beleaguered Greeks wanted out of the austerity measures forced by its creditors.
On news of the “no” vote, stocks took a hit globally, and oil was no exception. West Texas Intermediate fell over 4% this morning and is now down to $54.54 at time of writing.
In one fell swoop, Greece destroyed much of the gains oil investors saw in April and May on bullish rig data and demand.
It seemed inevitable, though, that Greece would reject a new bailout and more austerity and taxes… and it’s hard to blame them.
I’m not a reckless spender; I’m all for spending only what you have and no more. But in this case, with a country in an escalating debt scenario, it’s counterproductive for Germany and the rest of the eurozone to continually punish Greek citizens.
If anything, Greek creditors could recoup their losses on Greece faster if fewer austerity measures were imposed.
Think about it: As it is now, the creditors finance Greece but expect them to immediately return loans when it would be beneficial for them to provide a reprieve so the Greek economy has time to create jobs and recover.
At that point, the debt could be repaid easier.
But I’m no economist, just a humble value investor, so what do I know?
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Greece, Iran, and Your Money
Part of the reason the Greek vote hurt oil prices lies in economics…
Because oil is priced in dollars and the stock markets of several oil importers like China fell, the value of those countries’ respective currencies fell, too.
However, when there’s pressure on oil, the value of the dollar rises, and it makes it difficult for foreign countries to convert their currency into dollars to purchase oil, which takes a toll on demand.
The other reasons for the drop involve market fear, that loathsome beast that causes bear markets and bubbles of all kinds.
The market fears a potential Greek default as well as a nuclear deal with Iran, which would see millions of barrels of oil per day added to an already saturated global supply.
That deal has yet to be finalized, but the deadline is coming soon, and negotiators from the United States are keen on finishing the deal to bolster Obama’s legacy in the waning years of his presidency.
Expect a deal in Iran and any more bad news out of Greece to send oil prices lower for the time being.
Luckily, the beauty of commodities like oil is that they always go up eventually.
And if you’re like me and invest for long-term profit, then an investment in oil today and on any other bad news is a good one because you’ll be buying the lows.
Even though demand and falling foreign currencies hurt the oil market now, a U.S. recovery is still underway, as the rig count numbers from last week show.
So I wouldn’t say no to an investment because by the end of the year, oil demand should recover enough for investors to earn back some of those losses from the bear market.
Good Investing,
Alex Martinelli
With an eye squarely focused on the long-term, Alex Martinelli takes the art of income investing to a higher level within the energy sector. His research has helped hundreds of thousands of individual investors identify well established companies that have a long history of paying out dividends to their shareholders. For more info on Alex, check out his editor’s page.
