Greece Crisis and Iran Talks Weigh Down Oil Prices



Oil sector is more sensitive to macro trends

Consol Energy (CNX) is the sole stock in the coal and consumable subsector in the Energy Select Sector SPDR Fund (XLE). While Kinder Morgan (KMI) was the worst performer in the storage & transportation subsector, Williams (WMB) was the best performer, witnessing a steep rise in its share price early last week. Investors could also consider the iShares U.S. Energy ETF (IYE) to gain exposure to energy stocks.

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Greece shut down its banks and laid out capital controls, causing panic among global investors who fled from riskier assets towards safer havens. Further weakness is expected as the Greece situation will remain unresolved until a referendum, which is due later this week, as to whether the conditions for a bailout would be accepted. Following an initial surge against the euro on June 29, the US dollar retreated, causing the downside for dollar-priced oil to be limited.

Successful Iran deal could lead to oil oversupply, pressuring prices further

Major global powers, including the US, Britain, and China, among others, are trying to seal a deal to reduce Iran’s stockpiles of uranium. An agreement expected by the end of June would cause Iran’s disrupted supplies of oil to resume, leading to another round of global oversupply in crude oil.

Williams Companies rejects buyout deal and shares spike

Williams Companies (WMB) rejected a buyout offer originating from Energy Transfer Equity, which was worth $48 billion, early last week. The pipeline giant felt that the offered price was too low and is considering alternative buyers. Shares of Williams spiked up by more than 25%, following the rejection of the buyout deal by the company. Companies such as WMB and Kinder Morgan (KMI), which own energy infrastructure, have been relatively more protected from the plunge in gas and oil prices over the past year. This is due to the fact that these companies tend to operate on long-term, fixed-fee contracts, which earn them money irrespective of energy price movements.


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