Will the closure of Iran's nuclear dossier bring down the price of oil?

This morning, on the eve of the planned completion of the negotiations on the closure of the Iranian nuclear dossier in Lausanne, oil prices are falling amid expectations of the signing of a document. This is happening due to the fact that the authorities of the Islamic Republic have repeatedly stated their intention to dramatically increase oil production in the case of reconciliation with the international community on the Iranian atomic program.

May Brent crude on London's ICE Futures exchange fell to $56.85 a barrel. WTI fell to $48.1 per barrel. "Iran has built up significant oil inventories and could immediately increase exports if sanctions are lifted," Reuters cited ANZ analysts. Iran could increase oil production by some 500,000 barrels a day in three to six months if sanctions are removed, and by an additional 700,000 barrel a day within another year, according to estimates by Facts Global Energy. "Iran will be very reluctant to accept a lower quota, given that it has given up so much production due to sanctions," FGE experts remind.

The Telegraph daily expressed the most pessimistic estimate, it expects a fall in oil prices at the close of the Iranian nuclear dossier to $20 per barrel.

Sberbank CIB analyst Valery Nesterov told Vestnik Kavkaza that an escalation of Iranian oil exports to 50 million tons per year in the near future could seriously undermine the global market. "But it will not happen for several reasons. The current decline in oil prices is speculative in nature and involves the expectations of traders, whether a comprehensive agreement with Iran will be entered into or not. Most likely, the agreement will provide for a gradual lifting of sanctions and phased implementation of its provisions with regular monitoring. And this means that if Iran does not comply with the agreement, sanctions could return. So I do not expect a simultaneous release of Iranian oil onto the world market," he said.

 

The expert also drew attention to the fact that an instantaneous escalation of oil production is impossible. In general, he said, the price of oil could be equalized due to the crisis that persists in the Middle East. "A development of the conflict in Yemen with Iran is possible, which, incidentally, had a positive impact on oil prices. The market is still quite volatile, and the falling prices will not be long-term. Another thing is that, in general, forecasts for the middle and the end of the year are more pessimistic, it's more likely the average price will be $60 per barrel. However, if the price drops below $40 a barrel, it will lead to a rapid reduction in the supply of additional oil and a reduction in the production of shale oil in the United States. A certain amount of oil will be removed from the global balance and prices will grow again," Valery Nesterov said.The Deputy Director of the Institute of Energy Strategy, Alexey Belogoriev, said in an interview with Vestnik Kavkaza that he believes that the settlement of Iran's nuclear issue has already been incorporated into today's prices. "The agreement between Western countries and Iran became real at the end of 2013, and during that time all market participants responded to this opportunity. I do not think that a direct legal settlement of the issue will have a major impact on the market, at least in the medium and long terms. In addition, considerable tensions in Syria and Libya remain, which are linked with Iran," he reminded."Even in the case of settlement of the nuclear issue there will be the threat of conflict in the Middle East, especially between Iran and Saudi Arabia, between Iran and all the Arab countries in the Middle East. So I do not think that the closure of the Iranian nuclear dossier will have a major impact on oil prices," Alex Belogoriev concluded.

The expert also drew attention to the fact that an instantaneous escalation of oil production is impossible. In general, he said, the price of oil could be equalized due to the crisis that persists in the Middle East. "A development of the conflict in Yemen with Iran is possible, which, incidentally, had a positive impact on oil prices. The market is still quite volatile, and the falling prices will not be long-term. Another thing is that, in general, forecasts for the middle and the end of the year are more pessimistic, it's more likely the average price will be $60 per barrel. However, if the price drops below $40 a barrel, it will lead to a rapid reduction in the supply of additional oil and a reduction in the production of shale oil in the United States. A certain amount of oil will be removed from the global balance and prices will grow again," Valery Nesterov said.

The Deputy Director of the Institute of Energy Strategy, Alexey Belogoriev, said in an interview with Vestnik Kavkaza that he believes that the settlement of Iran's nuclear issue has already been incorporated into today's prices. "The agreement between Western countries and Iran became real at the end of 2013, and during that time all market participants responded to this opportunity. I do not think that a direct legal settlement of the issue will have a major impact on the market, at least in the medium and long terms. In addition, considerable tensions in Syria and Libya remain, which are linked with Iran," he reminded.

"Even in the case of settlement of the nuclear issue there will be the threat of conflict in the Middle East, especially between Iran and Saudi Arabia, between Iran and all the Arab countries in the Middle East. So I do not think that the closure of the Iranian nuclear dossier will have a major impact on oil prices," Alex Belogoriev concluded.