Tags: Iran | oil | export | price

Iran Accord Unlikely to Affect Oil Prices in Short Term

By    |   Monday, 06 April 2015 06:40 AM

The framework that the United States and Iran agreed upon last week on nuclear proliferation might ultimately lead to an agreement that would free up Iran's oil output and put downward pressure on oil prices.

But don't expect any impact on prices within the next year, despite crude's kneejerk drop after the announcement Thursday, experts tell The New York Times.

Iran's oil exports have fallen more than 1 million barrels a day since the European Union imposed sanctions on Iran's oil three years ago, according to the paper. That's a significant amount when you consider that world crude supply now exceeds demand by 2 million barrels a day. This oversupply helped push oil prices to six-year lows last month.

"The framework agreement lays out a path to significantly increase Iranian oil exports over time," Michael Levi, an energy expert at the Council on Foreign Relations, tells The Times, adding, "You want to know how many barrels will come out of Iran next week? Zero."

U.S. crude closed Thursday at $49.55 a barrel, down 54 percent from late June. Markets were closed for Good Friday.

Given all the time it will take to reach a final agreement with Iran — assuming that even happens — and then the time needed to lift sanctions, Raymond James analysts say Iran probably can't lift its output more than 500,000 barrels a day by the end of 2016.

"Let's not ignore the technical issues here," they write in a report obtained by The Times. "Once a well is shut in, resuming production is not quite flipping a switch. It is almost always the case that the subsequent rate of production ends up being below what the well was producing before."

When it comes to oil-related equities, investment legend Warren Buffett drew a lot of attention when his Berkshire Hathaway dumped shares of Exxon Mobil, ConocoPhillips and National Oilwell Varco in the fourth quarter.

But, "Buffett's success in the resource sector has been a mixed bag," writes John Manfreda of Oilprice.com.

He scored big on Petro China, selling in 2007 for a profit of $3.5 billion. But he lost several billion on his investment in ConocoPhillips, which began in 2008.

"In order for Buffett to buy a stock, the company has to pass this set of criteria: high margins with a low amount of debt (it doesn't take a genius to run them); strong franchises and freedom to price, with predictable earnings," Manfreda explains.

"This set of criteria sounds great when investing in a consumer goods business, but when investing in the resource sector, it's almost impossible to achieve. The energy industry has higher capital spending requirements than other industries."

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The framework that the United States and Iran agreed upon last week on nuclear proliferation might ultimately lead to an agreement that would free up Iran's oil output and put downward pressure on oil prices.
Iran, oil, export, price
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2015-40-06
Monday, 06 April 2015 06:40 AM
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