Energy markets on edge in wake of Greek ‘no’ vote

Energy markets proved resilient for the most part in the wake of Sunday’s Greek referendum result, with the turmoil that some had predicted largely failing to materialise.

But the situation remained somewhat on edge, with a number of noticeable shifts in the value of energy products linked to currency markets, hinting at what could happen further down the road as Greece returns to the EU negotiating table.

On Sunday, the Greek people were invited to make their own voice heard directly via the referendum on whether or not to accept debt bailout terms offered by the country’s creditors. The ‘no’ vote triumphed comfortably with a 61% majority against further austerity measures.

Light tremors were felt across markets, intensifying fears of a Greek exit from the eurozone, but at the time of writing late on Monday things were stable.

Feeling the FX

The euro fell against the dollar on Monday by around 1% compared to Friday before recovering throughout the afternoon. This had some impact on European energy markets.

Crude oil prices, which had slumped by $2.00/bbl either side of the weekend, fell further throughout the early hours of Monday morning London time, shedding another $1.00/bbl, although at the time of writing on Monday the contract has stabilised to hover just above its intraday low around $54.00/bbl.

Influence from the currency fluctuations spilled over into the British NBP natural gas hub. Stronger sterling on Monday morning boosted selling activity on the part of traders backed by euros. This triggered more pronounced losses on the front month August delivery contract in the UK than was seen at the Netherlands TTF or the German NCG hubs.

And in some power markets, oil’s influence could be felt. Weakness extended on Italian forward curve contracts, despite small gains on equivalent PSV gas products in early trade.

The Italian power is more exposed than most to oil and gas movements because of the gas-fired power plants feeding into the grid across the country, the fuel for which is in turn influenced by oil price movements.

Concerns over the Greek crisis also generated drops on the carbon market early on Monday. The benchmark carbon allowance for delivery starting December ‘15 opened the session on a bearish note. It first traded around €7.40/tCO2e (tonne CO2 equivalent) on ICE Futures Europe. It then immediately declined to a €7.35-7.40/tCO2e range, where it stabilised.

The Greek saga

After failing to secure a new bailout programme at the start of last week, Greece defaulted on its €1.55bn IMF loan repayment last Tuesday. The default brought Greece closer to an exit from the eurozone, which could mean the country would have to revive its former currency – the drachma.

After several rounds of negotiations, Athens has yet to reach a deal with its creditors or the EU.

Prime minister Alexis Tspiras called the referendum over a bailout programme offered to Greece, which included austerity measures. Only last week, Tspiras insisted a ‘no’ vote did not necessarily mean an exit from the eurozone.

Finance minister Yanis Varoufakis then resigned on Monday despite the people’s backing of the anti-austerity direction espoused by the government. His stepping down could potentially help Greece reach an agreement sooner by removing his influence from the EU negotiations.

Meanwhile Greece needs to strike a deal with the European Central Bank for emergency liquidity assistance. Without it, a current hold on banks could become extremely problematic for the country and for the energy sector (see EDEM 2 July 2015).

German chancellor Angela Merkel is expected to continue talks with other European leaders and Greek ministers on Tuesday.

The saga continues…

Greek banks closed last Monday for one week allowing only minimal withdrawals and halting all transactions with foreign counterparties.

As energy companies were unable to sign invoices for companies based abroad, electricity flows heading into the country faced issues. Imports into the country for Tuesday delivery dropped by 25% week on week, latest data from market operator LAGIE showed. On the 500MW interconnector with Italy, flows were volatile, with electricity heading into Greece in some hours, a reversal of the usual direction.

Some traders agreed the financial risk and uncertainty over payments going through were the main reasons behind the unusual cross-border trading patterns.

“There are concerns about being able to pay abroad for the electricity imported,” said one trader in the country.

The current situation, with markets on edge and awaiting the outcome of further talks, could continue for the next few days. One market source said the banks will remain shut, but some clarity should emerge after meetings between Greece and the EU on Tuesday. Sophie.udubasceanu@icis.com