NewsCrude oil slumps on Greece fears and US growth downgrade
AnalysisThe market is drowning with a flow of downbeat macroeconomic data and intensified fears over the global growth outlook. European leaders in Cannes yesterday cornered Greece and put its loans on hold until the referendum confirms their commitment to the euro and the Federal Reserve kept it policy unchanged and downgraded its outlook for the coming year pressuring markets lower and driving oil to the downside.

The worsening outlook for global growth pressured crude oil on weaker demand prospects as downbeat signals assure the slowdown is picking pace and the debt crisis in Europe returned to haunt markets and intensified in an unexpected flow of events with disorderly default from Greece now the biggest weight on markets.

Crude oil futures for December settlement are trading lower by 1.11% at $91.48 a barrel from the opening of $92.99 a barrel after recording the high of $93.23 and the low of $90.87 a barrel.

Investors are surely pessimistic at this point and the market has the capacity to extend the bearishness after yesterday’s slight relief. Investors hoped that Germany and France will use their weight to pressure Papandreou to change his mind on the referendum, yet seemingly it was too late and their final decision was a harsh rhetoric and more of a warning.

The leaders told Greece to finalize its decision and its sixth tranche that was approved in the summit late October is now on hold until they hold the referendum and confirm their commitment to the euro, which is now expected early December. This means that Greece might be insolvent as soon as next month without the loan!

Data so far do not signal recession for the global economy, but they surely signal the worsening pace of progress and especially in the euro area, which if conditions continued at this pace of worsening recession will be inevitable.

Markets are driven by the debt woes and the Greek dilemma and accordingly the future outlook for crude oil is surely for weaker demand and that is keeping the pressure on market.

We can see have demand returning to greenback, especially after the downbeat outlook for the economy which the Feds provided last night. The USDIX is currently trading higher by nearly 0.3% at 77.31 recording the high of 77.50 and the low of 77.22.

Crude was further pressured after the FOMC slashed its growth outlook for next year and raised its unemployment expectations. Bernanke signaled the possibility for the Feds to indulge in further easing including the third round of quantitative easing yet that is not taking effect on the market for now amid the rising uncertainty and prevailing short term bearish pressures on markets and especially crude oil.

Heavy volatility is expected today with eyes still on Europe and the beginning of the G20 two-day summit in Cannes as investors hope for any news to comfort the market and any decisions to anchor the worsening debt crisis in the euro area.