Tags: Iran | Nuke | Deal | Oil

Iran Nuke Deal Unlikely to Jolt Oil Prices

Sunday, 24 November 2013 11:32 AM

Iran’s promise to limit nuclear work in return for loosened economic sanctions will have a “muted” effect on crude prices as the nation’s oil sales stay capped, said analysts including Societe Generale SA’s Mark Keenan.

Oil exports from the Islamic republic will be held to about 1 million barrels a day under sanctions that remain in force after Iran and six world powers reached an agreement Saturday in Geneva, according to the White House. The sanctions cut Iranian crude sales by 60 percent since the start of 2012, depriving the country of more than $80 billion in revenue, U.S. President Barack Obama’s administration said in a statement.

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“I doubt the deal will have any significant price impact,” given that Iran can’t boost crude sales under the accord, Gordon Kwan, Nomura Holdings Inc.’s regional head of oil and gas research, said Saturday by e-mail from Hong Kong. “The oil market will take some time to be convinced that Iran is serious in compliance before pricing out the hefty geopolitical premium.”

The six-month agreement, which offers Iran about $7 billion in relief from sanctions in exchange for curbs on its nuclear program, leaves in place banking and financial measures that have hampered the OPEC member’s crude exports. Sanctions on sales of refined products also remain, while Iran gains access to $4.2 billion in oil revenue frozen in foreign banks, the White House said.

EU Embargo

Buyers of Iranian crude that have reduced purchases won’t be required to make further cuts over the next six months under Saturday’s accord. As part of the deal, the European Union will lift a ban on insurance for tankers transporting Iranian oil, making it easier for the Persian Gulf nation’s six remaining customers to take delivery. The EU will continue to prohibit crude imports from Iran.

“The resolution doesn’t at this stage extend to the lifting of sanctions on oil exports, and as such the initial impact on the oil price is likely to be somewhat muted,” said Keenan of Societe Generale. “We can, however, expect some price weakness as the market adjusts to the future prospect that Iranian exports will resume.”

Crude futures in New York have slumped 12 percent since Iranian President Hassan Rouhani took office Aug. 1, pledging to end the sanctions crippling his country’s economy. West Texas Intermediate dropped 60 cents in trading on Friday to close at $94.84 a barrel. European Brent crude, a benchmark for more than half the world’s oil, gained 1.4 percent since Aug. 1, as exports from Libya slumped amid unrest in the North African country.

‘Downward Pressure’

The accord may put “downward pressure” on Brent prices when markets open because it will let Iran raise exports by nearly 300,000 barrels a day from last month’s level, said Olivier Jakob, managing director of consultant Petromatrix GmbH. Iran sold 715,000 barrels a day in October, according to the International Energy Agency. The combined effects of oil, shipping and financial restrictions caused buyers of Iranian crude to take less than sanctions allowed, Jakob said by phone from Zug, Switzerland, Saturday.

By loosening sanctions on shipping insurance, the agreement will enable importers to buy their full allotments, he said.

“For the next six months, we know we will have the maximum exports from Iran that are allowed by sanctions,” Jakob said. “Now the big supply uncertainty is Libya.”

First Step

Saturrday’s agreement offers what Obama called targeted relief from sanctions, all of which can be imposed again if Iran doesn’t stick with its end of the bargain. It is intended as a first step to a comprehensive accord to be reached in six months to constrain Iran’s nuclear activities so that it can’t be used to make an atomic weapon, in exchange for a planned lifting of nuclear-related sanctions. “Iran’s crude oil sales cannot increase” over that period, the White House said.

“It’s a step, but it’s not like the end of a sanctions regime, not like it’s going to have a significant impact on the real balances of supply and demand for oil,” Ed Morse, the New York-based head of commodities research at Citigroup Inc., said in a phone interview. “On the other hand, it should take off whatever risk there might be in the market for the moment in terms of additional sanctions.”

The accord allows Iran limited petrochemical exports and removes some curbs on gold trading. Those measures, together with an easing of sanctions on the automotive industry, will potentially provide Iran with $1.5 billion in revenue, the U.S. administration said. The accord also eases constraints on safety-related repairs for some Iranian airlines.

Indian Imports

The EU’s removal of a ban on insuring tankers transporting Iran’s crude will ease exports to India, refinery officials in that country said Saturday. Indian Oil Corp., Hindustan Petroleum Corp. and Mangalore Refinery & Petrochemicals Ltd. will be able to purchase contracted volumes more easily, officials from the companies said, adding that they don’t intend to buy more oil than previously planned.

In June 2012, there were 23 importers of Iranian crude; today, only six remain - China, India, South Korea, Japan, Turkey and Taiwan, according to U.S. officials. Iran is the sixth-biggest producer in the Organization of Petroleum Exporting Countries, down from the second-place rank it held until last year.

Brent Forecast

The nation’s crude exports fell to a 21-month low of 715,000 barrels a day in October, compared with an average 1.1 million for the first nine months of the year, according to the IEA. The volume of Iran’s unsold oil stored in tankers rose to about 37 million barrels in October, the IEA estimated. The nation pumped 2.6 million barrels a day in October, according to data compiled by Bloomberg.

The European grade may slip below $100 a barrel for the first time since June should talks lead to the easing of sanctions, according to a Bloomberg News survey of traders and analysts on Oct. 14. Brent may drop by $12 a barrel, according to the mean estimate of 19 traders and analysts surveyed by Bloomberg. Prices rose to as high as $128.40 in March 2012 as the U.S. and European Union tightened sanctions.

Saturday’s accord “looks to be a positive initial resolution, and will likely pave the way for a more comprehensive deal in the future,” said Keenan of Societe Generale.

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Iran's promise to limit nuclear work in return for loosened economic sanctions will have a "muted" effect on crude prices as the nation's oil sales stay capped, said analysts including Societe Generale SA's Mark Keenan.
Sunday, 24 November 2013 11:32 AM
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