LONDON: Oil prices fell more than 3 percent on Monday after Greece rejected debt bailout terms and China rolled out emergency measures to support its stock markets, adding to concerns about demand at a time of global oversupply.
The result of Greece’s referendum put in doubt its membership in the euro, pulling down the single currency EUR= against the dollar.
A strong dollar tends to pressure commodities as it makes fuel more expensive for holders of other currencies.
Commodities were also sucked into market turmoil that has seen Chinese shares .CSI300 fall as much as 30 percent since June due in part to the economy growing at its slowest pace in a generation.
“Uncertainty over Greece is bearish for oil. It adds an extra negative factor on top of the turmoil in Chinese financial markets, the recent rise in U.S. drilling rigs, and a potential increase in Iranian oil supply,” said Olivier Jakob, senior energy analyst at Petromatrix in Zug, Switzerland.
Benchmark Brent crude oil LCOc1 fell $2.04 a barrel to a low of $58.28 before recovering a little to around $58.75 by 1145 GMT (7:35 a.m. EDT).
U.S. light crude CLc1 fell as low as $53.91, down $3.02 from its close on July 2. July 3 was a U.S. holiday.
Both crudes hit their lowest levels since mid-April.
With markets already nervous due to the turmoil in Europe and China, fundamentals were also bearish.
U.S. drilling increased for the first time after 29 weeks of declines, the strongest sign yet that higher crude prices are coaxing producers back to the well pad.
Production in Russia and the Organization of the Petroleum Exporting Countries is also at or near records.
Analysts say OPEC is now pumping around 2.5 million barrels per day (bpd) more than demand for its crude, filling inventories worldwide.
“Demand is good, but supply is better,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.
Putting further pressure on oil markets was a possible nuclear deal between global powers and Iran, which could add more oil to oversupplied markets if sanctions on Iran are eased.
“Reports increasingly suggest a deal is likely before July 9,” Morgan Stanley analysts said in a report.
“With a deal, some supply could creep from floating storage. More material exports (500,000-700,000 bpd) would likely come in late 2015 or early 2016, which could delay the recovery in oil prices and U.S. production by 6-12 months.”