Oil prices staged a relief rally early Monday after Greek elections on Sunday yielded what’s being perceived as a market-friendly outcome, though some warned the bounce in risk-assets may not last as questions persisted over the viability of a new coalition government.
Parties committed to the European Union and International Monetary Fund (IMF) bailout for Greece were set to win a slim parliamentary majority on Sunday, beating radical leftists who reject the terms of the lifeline.
The election result looked likely to yield a coalition government led by conservative New Democracy. But it also leaves an emboldened left-wing Syriza bloc to rally angry opposition in the streets to the punishing austerity terms of the bailout.
“This is a good outcome for now,” said Ian Bremmer, President and Founder of Eurasia Group, a global political risk research and consulting firm, told CNBC Asia's "Squawk Box" on Monday. Greece has shown that “they’re capable of further can kicking” and he warned that a coalition government may last just six to 12 months.
London Brent crude rose over $1 to $98.94 a barrel, while U.S. light, sweet crude was trading $1.25 up at $85.28 a barrel in early Asia.
“The pro-bailout vote in Greece has ignited a relief rally, which in the very near term will meet resistance at $87 in WTI (West Texas Intermediate, the benchmark grade for U.S. crude futures) and around $100 for the European contract,” according to ANZ analysts including Mark Pervan and Nicholas Trevethan.
“However, we could see prices press another 5 percent higher in the days to come," ANZ said. But uncertainty over Europe and weaker-than-expected U.S. data will keep markets on edge, ANZ warned.
Oil prices were expected to remain little changed this week, with U.S. crude futures seen oscillating in a tight range around $84 a barrel, according to a CNBC survey of analysts ahead of the Greek elections.
"On the front of everyone's mind is Greece but I do not anticipate any real resolution following the election results," Kirk Howell, chief operating officer of SunGard's Kiodex, who has a "neutral" call for this week said before the poll results. "Whatever party wins will likely negotiate a new agreement with the euro zone, regardless of the rhetoric up to the election."
Oil has consolidated around $84 over the last two weeks, Howell noted, adding: "Given the complexity of coming events, I think it's prudent to wait for the price to break above $86.60 or below $81 to establish a direction."
This week's poll suggested most market participants were non-committal. Few are inclined to make any directional bets until they got greater clarity on the Greek election results while those that were willing to make a call expected prices to slide.
"Prices will remain somewhat sluggish until we get some kind of clear message from Europe, if we ever do," said Keven Kerr of Kerr Trading International. Five out of the seven respondents in the sample group expect prices to remain steady this week while two believe prices will fall.
Consensus is emerging among technical analysts, chart watchers and fundamental analysts alike that a move lower in oil would take prices below $80 with the most pessimistic forecasters predicting prices close to $75.
A two-day policy-setting meeting by the Federal Reserve's Open Market Committee starting on Tuesday and a meeting of the Group of 20leaders starting on Monday in Mexico will be watched closely for any hints of coordinated action to possibly prevent the banking crisis and sovereign debt strains in Europe from spiraling out of control.
The refrain from most central banks is that they're standing by with more stimulus, if needed but are not likely to release further easing measures imminently.
The European Central Bank "will not do anything until after elections,” said David Kotok, chairman and chief investment officer at Cumberland Advisors.
Some analysts believe the Fed will extend 'Operation Twist,' a program under which it bought $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less.
"I've heard one argument that they (the Fed) can extend Twist... and drive the treasury yield a little lower and target a home mortgage interest rate at 3 percent,” Kotok added. “It might boost housing some more. No clear path. My guess is they use jawboning but minimal policy."
U.S. crude futures recorded a 7-cent loss last week following a 1 percent gain in the week to June 8. The July contract on the New York Mercantile Exchange settled at $84.03 a barrel on Friday, rising 12 cents, or 0.14 percent.
The stresses in the euro zone had a more pronounced impact on Brent crude futures with the August contract on the InterContinentalExchange, or ICE, last week dropping $1.86, or 1.87 percent, after gaining 1 percent in the week to June 8.
Daryl Guppy, CEO of Guppytraders.com said the charts suggested a bearish tone but prices could stage technical rebound from support near $78 if it holds.
Dhiren Sarin, chief technical strategist for Asia-Pacific at Barclays Capital also said levels around $78 were key.
"The greater bearish backdrop remains undamaged and we would look to sell against the $87 area for a move through $81, a break below which would suggest a target at $78.90.”
But Sarin said a "pause in the down move for WTI crude" was a possibility as the technical charts signaled "a momentum warning (divergence)" suggested reversal.
Sandy Jadeja, chief technical analyst at City Index, said the trend remained negative but maintained an upside target at $94.15.
ANZ Commodity Research analysts, however, were negative: "In the event of a move lower" for oil, they said, "we see WTI support at $81, and then down towards $76.”
John Kilduff at Again Capital added that if WTI crude breaks $81.50, prices could "cascade rapidly" to $74.95.
By CNBC's Sri Jegarajah