What the Iran Nuclear Deal may mean for Crude Oil Prices

Not surprisingly, oil prices took a pounding following word that Iran reached a preliminary agreement with six world powers over its nuclear programme.

The Associated Press reported the two parties have “agreed on the outlines of an understanding that would open the path to a final phase of nuclear negotiations.” A news conference in Switzerland was held on Thursday around 1:30 p.m. Eastern Time to announce the deal, but June 30 remains the final deadline for a comprehensive deal to be reached.

Iran’s Foreign Minister Javad Zarif tweeted that “solutions” were found and that the country is “ready to start drafting immediately.”

Lifting sanctions on Iran could mean that the country is allowed to export oil, which could mean fresh supplies flowing into a market already swimming in too much oil.

May crude oil CLK5, -1.94% was down $1.33, or 2.5%, at 48.91 a barrel on the New York Mercantile Exchange while May Brent crude prices LCOK5, -3.68% had been down more than 5% on the news. Brent was trading at $54.72 a barrel, most recently.

Before the agreement, an analyst had said that Iran’s return to the oil market would be “long and arduous.”

Analysts offered their thoughts shortly after news of an preliminary accord over Iran’s nuclear program on Thursday.

Tyler Richey, analyst for the 7:00’s Report:

“It appears the Iran talks have resulted in an agreement to disclose what has been accomplished thus far and that they will continue negotiating to work towards a final agreement on Iran’s nuclear program and economic sanctions with a deadline in June.”

“The outcome was largely in line with market expectations that a ‘framework’ would be met to continue negotiating the specific details of the ultimate agreement which is why the market reaction is limited.”

Colin Cieszynski, chief market strategist at CMC Markets:

“An outline of an understanding is a good start anyway, but not a final deal. [The] news conference could send oil lower if it includes a clear timetable for when more sanctions are to come off and oil released into the market place. Otherwise, much of the reaction may already be in the market.”

“Progress toward a deal could help to close the Brent -WTI spread.”

Naeem Aslam, chief market analyst at AvaTrade:

“The Iran nuclear deal is a massive blow for the oil price and we could see the crude-oil price falling to $30 very easily. This deal actually represents 1 million barrels a day of extra oil on the market so net effect on the supply equation will be nearly 2 million [barrels a day]. Now we will have serious trouble with the storage and the shares for such companies could inflate even higher.”

Source: MarketWatch