Oil prices drop as nuclear deal paves way for Iran exports

Friday 10/07/2015
More crude to an already oversupplied market

LONDON - Oil prices fell Tuesday as Iran's deal with world powers on curbing the Islamic republic's suspected ambitions for a nuclear bomb is set to see crude added to an already oversupplied market.
Analysts said the landmark agreement that will see sanctions lifted on Iran's oil exports, would put a lid on any rise in crude futures this year and in the future.
On Tuesday, Brent North Sea crude for delivery in August shed 75 cents to stand at $57.10 a barrel in London afternoon deals.
US benchmark West Texas Intermediate for August dropped $1.05 to $51.15 compared with Monday's close.
"To be clear, the return of Iranian oil exports over the next year is one factor likely to keep oil prices low," said Thomas Pugh, commodities economist at consultants Capital Economics.
"However, oil prices will also continue to be buffeted by changes in sentiment towards commodities in general, which have recently been influenced most by the gyrations in China's stock market," he added.
Six world powers and Iran have formally concluded a historic deal aimed at ensuring that Iran does not obtain a nuclear bomb, the EU's foreign policy chief Federica Mogherini announced Tuesday.
The accord is aimed at ending a 13-year standoff over Iran's nuclear ambitions after repeated diplomatic failures and threats of military action.
The deal puts strict limits on Iran's nuclear activities for at least a decade and calls for stringent UN oversight, with world powers hoping that this will make any dash to make an atomic bomb virtually impossible.
In return, painful international sanctions that have slashed the oil exports of OPEC's fifth-largest producer by a quarter and choked its economy will be lifted and billions of dollars in frozen assets unblocked.
Tuesday's drop in oil prices extended losses recorded a day earlier, in response "to the nuclear agreement... between the world powers and Iran", said analysts at Commerzbank in a note to clients.
"If sanctions are eased, additional oil from Iran could reach the already oversupplied market," they added.
Ahead, "the extent of the impact on oil prices will depend primarily on the domestic capability to get oil on the market", said Nina Skero, economist at the Centre for Economics and Business Research.
"We expect Brent crude to recover somewhat from the price drop which followed today's deal announcement and trade around $60 per barrel for the remainder of the year," she added.
World oil prices collapsed by 60 percent between June 2014 and January when it hit a low of $45. This in part was owing to excessive supplies caused by the boom in US shale oil.
While OPEC on Monday revised upward its forecast for global crude oil demand growth for this year, it warned that crude output would also continue to increase.
Iran's OPEC peers Saudi Arabia and Iraq "have both significantly ramped up production this year", noted Richard Mallinson, analyst at research group Energy Aspects.
"There is little chance that these countries, and other OPEC members, are going to reduce output to make space for a return of Iranian production," he said.
"While the actual increase from Iran will only start next year, expect to see significant competition between sellers for market share, particularly in Asia."