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Oil Prices Dip After Nuclear Deal With Iran Oil Prices Dip After Nuclear Deal With Iran
(about 4 hours later)
LONDON — Oil prices dipped Monday on the heels of an interim agreement between Iran and the United States and other world powers to temporarily freeze Tehran’s nuclear program. Stocks around the world, and the dollar, went higher. LONDON — Oil prices dipped and stocks around the world rose on Monday after the news of an agreement to temporarily freeze Iran’s nuclear program, but few specialists expected any significant change to consumer energy prices, at least in the short term.
But few experts expect any significant change to consumer energy prices, at least in the short term. Under the interim deal brokered between the United States and other world powers with Tehran, little has changed in market fundamentals. Analysts doubted that Iran would be able to increase exports much, if at all, in the six months covered by the deal, because the Washington-led coalition has not lifted its embargo against Iranian oil.
In terms of market fundamentals, little has changed, despite the United States’ agreement to provide $6 billion to $7 billion in sanctions relief to Iran, much of it in the form of oil revenue that has been frozen in foreign banks. Gregg Laskoski, an analyst at GasBuddy.com, a website that tells motorists where to find the least expensive gasoline in the United States and Canada, said the Iran deal “may bring some calm to markets,” but he expressed doubt that it would have a significant impact soon.
Analysts say that Iran is unlikely to be able to increase its exports much, if at all, during the six-month period covered by the deal, because the Washington-led coalition has not lifted its embargo against Iranian oil. The main buyers will continue to be those that, given their heavy reliance on energy imports, have been given waivers by the United States: China, India, South Korea and Japan. Even before the announcement Sunday, American drivers were likely to pay less at the gas pump this Thanksgiving than they did last year. The national average for gasoline is $3.26 a gallon compared with $3.43 a gallon a year earlier, Mr. Laskoski said. Consumers are benefiting from a year that has been “relatively quiet in terms of refinery problems,” he said, compared with fall 2012, when refineries took a beating from Hurricane Sandy.
Gregg Laskoski, an analyst at Gasbuddy.com, a website that advises motorists on where to find the least expensive gasoline in the United States and Canada, said the Iran deal “may bring some calm to markets,” but he said he doubted it would have a significant impact soon. Seth Kleinman, an analyst at Citgroup in London, said that while the deal with Iran would not have an immediate, significant impact on Iranian output, it was the beginning of progress.
Even before the weekend announcement, American drivers were likely to pay less at the gas pump this Thanksgiving holiday than they did last year. The national average for gasoline is $3.26 a gallon compared with $3.43 a gallon a year earlier, according to Mr. Laskoski. Consumers are benefiting from a year that has been “relatively quiet in terms of refinery problems,” he said, compared with the autumn of 2012, when refineries took a beating from Hurricane Sandy. “It is a very significant steppingstone in terms of relieving sanctions,” Mr. Kleinman said.
Analysts said the main benefit of the weekend’s understanding with Iran may be the psychological impact on the market, which has long been propped up by fears of a supply disruption resulting from the standoff between Iran and the United States and its allies. If those fears are defused, the energy markets might begin to more fully reflect purer issues like supply and demand, as well as the global search for alternative energy sources. Under the deal, the United States has agreed to give Iran $6 billion to $7 billion in sanctions relief, much of it in the form of oil revenue that has been frozen in foreign banks. With the oil embargo in place, Iran’s main buyers will continue to be those that, given their heavy reliance on imported energy, have been given waivers by the United States: China, India, South Korea and Japan.
Analysts said the main benefit of the accord with Iran may be the psychological impact on the market, which has long been propped up by fears of a supply disruption resulting from the standoff between Iran and the United States and its allies. If those fears are defused, the energy markets might begin to more fully reflect purer issues like supply and demand, as well as the global search for alternative energy sources.
“There was always the risk of military conflict at the end of the path of sanctions if they proved ineffective,” said Simon Wardell, an analyst at the market research firm IHS in London. “That was always one of the factors keeping prices elevated and that begins to deflate now.”“There was always the risk of military conflict at the end of the path of sanctions if they proved ineffective,” said Simon Wardell, an analyst at the market research firm IHS in London. “That was always one of the factors keeping prices elevated and that begins to deflate now.”
Iran’s oil and gas industry was curtailed in recent years by the sanctions, which is why the United States-led alliance had leverage in the nuclear negotiations. The country’s oil sales were squeezed by a combination of American pressure on Iran’s customers and the Iranian oil industry’s inability to gain access to sufficient investment and equipment. David L. Goldwyn, a former senior official at the United States State Department who now has a consulting firm, Goldwyn Strategies, agreed that the easing of fears would affect the markets, but added that any small gains in supply were likely to be offset by instability in places like Libya, Iraq, Nigeria or Sudan.
As a result, Iranian production has fallen to about 2.7 million barrels a day from around 4 million barrels five years ago. The second-largest producer in the Organization of the Petroleum Exporting Countries until last year, Iran has fallen to fifth. Iran’s oil and gas industry was curtailed in recent years by the sanctions, which is why the United States-led alliance had leverage in the nuclear negotiations. Oil sales were squeezed by a combination of American pressure on Iran’s customers and the Iranian oil industry’s inability to gain access to sufficient investment and equipment.
Nawaf Obaid, a fellow at the King Faisal Center for Research and Islamic studies in Riyadh, conceded that a “correction” in the price of oil might be coming, but he said that the Saudi Arabian economy could cope with a price decline of as much as $20 to $25 a barrel. As a result, Iranian production has fallen to about 2.7 million barrels a day from around four million barrels five years ago. Iran is now fifth-largest producer in the Organization of the Petroleum Exporting Countries; until last year, it was the second-largest.
In recent years, global oil prices have been relatively high in historic terms — Brent crude has stayed mostly above $100 since early 2011 — which had prompted a surge in investment in a wide range of energy sources, whether oil and gas or renewables like solar and wind power. At the same time, either to reduce carbon emissions or to save money, many countries have been pushing for higher energy efficiency, by shifting from oil to natural gas or by moving away from energy-intensive heavy industries altogether. Nawaf Obaid, a fellow at the King Faisal Center for Research and Islamic Studies in Riyadh, conceded that a “correction” in the price of oil might be coming, but he said that the Saudi Arabian economy could cope with a price decline of as much as $20 to $25 a barrel.
At the same time, the United States, aggressively developing oil and gas supplies from shale rock, has added oil to the world supply on a level comparable with current Iranian production. Those additional resources gave the world powers a supply cushion on top of the economic pressures on Iran that helped make this weekend’s deal possible. In recent years, global oil prices have been relatively high in historical terms — Brent crude has stayed mostly above $100 since early 2011 — which prompted a surge in investment in a wide range of energy sources, whether oil and gas or renewables like solar and wind power. At the same time, either to reduce carbon emissions or to save money, many countries have been pushing for more energy-efficiency, by shifting from oil to natural gas or by moving away from energy-intensive heavy industries altogether.
There is now an oil glut in the United States, which is the main reason that prices of the American benchmark crude, West Texas Intermediate, were trading around $94 a barrel on Monday, down 0.8 percent. That is far below the international Brent crude standard, was at about $111 a barrel on Monday. Mr. Kleinman of Citgroup said that prices were surprisingly high this year because of large disruptions, but added that he thought the odds were against a repeat next year.
New supplies are also now beginning to come from the deep waters off Brazil. And the Kashagan project in Kazakhstan, long delayed because of technical problems, is expected to start producing next year. “If you look at the biggest components of those, they are Iran and Libya. Libya is producing close enough to zero that the risk is they will produce more oil rather than less.”
At the same time, the United States, aggressively developing oil and gas supplies from shale rock, has added oil to the world supply on a level comparable with current Iranian production. Those additional resources gave the world powers a supply cushion on top of the economic pressures on Iran that helped make the deal possible.
An oil glut in the United States is the main reason that the American benchmark crude, West Texas Intermediate, was trading around $94 a barrel on Monday, down 0.8 percent. That is far below the international Brent crude standard, which was about $111 a barrel on Monday.
New supplies are also beginning to come from the deep waters off Brazil. And the Kashagan project in Kazakhstan, long delayed because of technical problems, is expected to start producing next year.
Iran, which in the past has produced more than one million barrels a day above its current level, could eventually be a source of additional output if the sanctions are lifted, as well as a much bigger player in world gas markets.Iran, which in the past has produced more than one million barrels a day above its current level, could eventually be a source of additional output if the sanctions are lifted, as well as a much bigger player in world gas markets.
“Iran appears to be another Qatar in terms of gas reserves,” analysts at Citigroup wrote in a recent note. Iran shares the world’s largest gas field with Qatar but has made slow progress in developing it, while Qatar has become a leading gas exporter. Qatar exported 105 billion cubic meters, or 3.7 trillion cubic feet, of gas last year, in third place globally, after Russia and Norway.“Iran appears to be another Qatar in terms of gas reserves,” analysts at Citigroup wrote in a recent note. Iran shares the world’s largest gas field with Qatar but has made slow progress in developing it, while Qatar has become a leading gas exporter. Qatar exported 105 billion cubic meters, or 3.7 trillion cubic feet, of gas last year, in third place globally, after Russia and Norway.
The energy markets will probably focus not only on progress in the longer-term negotiations with Iran but also on whether other energy-producing countries that have curtailed oil and gas production. In recent months, both Libya and Nigeria, two major OPEC producers, have seen production curbed by political turmoil and deteriorating security. The energy markets will probably focus not only on progress in the longer-term negotiations with Iran but also on whether other energy-producing countries have curtailed oil and gas production. In recent months, political turmoil and deteriorating security have curbed production in Libya and Nigeria, two major OPEC producers.
“News like the developments in Iran can contribute to an improving supply picture,” Richard Mallinson, an analyst at Energy Aspects, a London-based research firm, said Monday. “The question is whether the positive signs in terms of supply translate into real improvement.”“News like the developments in Iran can contribute to an improving supply picture,” Richard Mallinson, an analyst at Energy Aspects, a London-based research firm, said Monday. “The question is whether the positive signs in terms of supply translate into real improvement.”