The Iranian Nuclear Deal Won't Have Much Impact On The Oil Market

Last night, Iran
signed a dealwith Western powers to curb its nuclear activities.

Iran was willing to negotiate because their economy had taken body blows from the sanctions imposed by Western countries. Among the sanctions with the greatest impact: Western countries were prohibited from buying oil. The White House says lost oil sales have cost Iran $US80 billion. Iran’s annual GDP is only about $US500 billion.

According to the new deal, Iran still won’t be allowed to raise exports for another six months. That’s why analysts are saying oil markets probably won’t react much to the deal’s announcement — though prices still could come down slightly on the prospect of more barrels eventually returning to the market. Here’s SocGen strategist Mark Keenan’s take, via a Bloomberg report:

“The agreement will probably have a “somewhat muted” effect on oil prices, according to analysts including Mark Keenan, cross-commodity research strategist at Societe Generale in Singapore. “We can, however, expect some price weakness as the market adjusts to the future prospect that Iranian exports will resume,” he said by e-mail.”

At the same time, the sanctions have crippled investment into production facilities, so even once Iranian barrels do start returning, they will not rapidly do so. Here’s what Barclays said Nov. 19:

“As a result of the sanctions, Iran has been under-investing in its fields and faces a number of project start-up delays. This leads us to believe that, even in a sanction-free world, any return of Iranian oil barrels would likely be slow. When taken together with current unplanned outages of over 3mb/d in the oil market, this supports our view that oil prices will remain robust.”

So we should keep our expectations of Monday’s crude trading moves in check.

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