Oil hit its lowest point in two months on July 1, falling on a combination of market turmoil and bearish oil figures.

WTI dipped below $57 and Brent dropped to around $62 per barrel, breaking out of a narrow range within which the two benchmarks have been trading for several months.

The ongoing crisis in Greece is weighing on global markets. The Greek government has called a referendum set for July 5th that will largely test the Greek public’s desire to endure more austerity or else risk a more uncertain path. Greece’s creditors have declined to negotiate an extension of the bailout package until after the referendum, and EU member states led by Germany have suggested the vote would be tantamount to a decision on whether or not Greece would remain in the Eurozone. Meanwhile, Greece’s banks are closed for the week, and tempers will likely flare as the days pass with people unable to withdraw cash. Related: BP Agrees To Pay $18.7 Billion To Settle Deepwater Horizon Spill

The crisis is causing broader worries over the stability of global markets. Although Greece is a small country, and makes up only a fraction of the Eurozone’s GDP, the markets are keeping a wary eye on the ongoing predicament, watching for any signs that the euro itself could be affected. All of this is dragging down stock markets and oil prices.

A second major factor that suddenly pushed down oil prices is the latest EIA figures released on July 1, which showed a very surprising uptick in the level of crude oil storage. Oil inventories climbed by 2.4 million barrels, the first increase in two months. Since mid-April, the U.S. has begun drawing down its record high inventory levels, with refineries working their way through the glut and producers leveling off their production.

The unexpected increase in oil in storage levels has dampened hopes that a bull market could be just around the corner. The glut is apparently not over just yet. Related: New Silk Road A Disaster Waiting To Happen?

Although the data is suspect, the EIA has also continued to report increases in weekly oil production levels. These figures rely more on extrapolation and thus are viewed with more suspicion, but the EIA contends that over the past few weeks the U.S. has achieved its highest level of production in over 30 years, despite the dramatic fall in oil prices and the number of rigs in operation. Again, that data should be taken with a grain of salt, but whether or not it is accurate, it will drag down oil prices until more precise data is reported.

Ongoing volatility in the Chinese economy provides another reason for soft oil prices. The Shanghai Composite and the Shenzhen Composite, two major stock exchanges in China, have tumbled in recent weeks over fears that they have become detached from slower growth in China’s overall economy. If the “bubble” is indeed popping, that presents a massive risk to oil prices. The two exchanges fell another 5 percent on July 1 after regaining ground the day before. This one is not over yet.

Moreover, Iraq posted record high level of crude oil exports for the month of June, averaging 3.187 million barrels per day. Iraq joins Saudi Arabia in ratcheting up oil exports, even as the world remains well supplied. Related: Bakken Production Remains Firm In Spite Of Low Oil Prices

Finally, the negotiations over Iran’s nuclear program have been extended by a week, clearly a sign that the P5+1 countries and Iran are at least close to a deal. Russian Foreign Minister Sergei Lavrov gave optimistic remarks to reporters, saying that a deal was “within reach.” He added that the negotiations are “progressing in a positive direction. There remain questions, mostly regarding procedural issues rather than technical.” While nobody should count on a deal until it is signed, if the remaining obstacles are merely “procedural,” that bodes well.

Of course, Iranian oil will not come back immediately, even if sanctions are lifted. But an agreement over its nuclear program will still provoke an immediate reaction from the markets, anticipating a future increase in exports.

Taken altogether, crude oil has hit a rough patch. None of this changes long-term forecasts, but the combination of short-term factors are dragging down prices.

By Nick Cunningham, Oilprice.com

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