Brent crude led energy prices from gasoline to heating oil lower, heading for its biggest loss in three weeks, after Iran and world powers reached a preliminary accord on the country’s nuclear program that will ease economic sanctions while keeping a cap on oil sales.
Futures slid as much as 2.7 per cent in London, declining for the first time in four days, while West Texas Intermediate fell 1.6 per cent in New York. Iran’s oil exports will be held to about 1 million barrels a day under sanctions that remain in force after the deal announced yesterday in Geneva, according to the White House. Gasoline and heating oil futures both slid at least 2.3 per cent on the New York Mercantile Exchange.
“The move lower in prices is an expected reaction to the news, especially considering the recent strength,” said Mark Keenan, the head of commodity research for Asia at Societe Generale SA in Singapore. “The market will likely require a little more evidence that this initial resolution goes through” before crude drops further, he said.
Brent for January settlement decreased as much as $3 to $108.05 a barrel on the London-based ICE Futures Europe exchange, the biggest intraday loss since November 1st. It was at $108.65 at 3:31 p.m. Singapore time. The contract advanced 97 cents to $111.05 on November 22nd, the highest close since October 11th. WTI for January delivery fell as much as $1.55 to $93.29 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at a discount of $15.03 to Brent. It closed at $16.21 on November 22nd, the widest gap since March 14th.
Brent, the benchmark for half the world’s crude, rose the most in almost two weeks on November 8th after US Secretary of State John Kerry downplayed the chances of a nuclear accord. The deal was reached yesterday after foreign ministers from the US, Europe, China and Russia made unscheduled trips to Geneva to push the third round of talks in six weeks to a conclusion. Gasoline futures fell to as low as $2.6598 a gallon on the Nymex while heating oil contracts dropped to $2.9701. Gasoil in London slid 2.1 per cent to $918.50 a metric ton. Natural gas futures were the only major energy contract to rise today, advancing as much as 2.2 per cent to $3.849 per million British thermal units in New York amid forecasts for below-normal temperatures in the US.
“There’s still a long way to go, but with each of these steps we should see some sort of response to the risk premium,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The bigger thing for the oil market in terms of the impact on prices is the longer view that this represents a tangible step toward a more final solution that might ultimately see the sanctions lifted altogether.”
Sanctions have cut Iranian oil sales by 60 per cent since the start of 2012, depriving the country of more than $80 billion in revenue, US President Barack Obama’s administration said in a statement. The six-month agreement, which offers Iran about $7 billion in relief from sanctions in exchange for curbs on its nuclear program, leaves in place banking and financial measures that have hampered its crude exports. Sanctions on sales of refined products also remain, while Iran gains access to $4.2 billion in oil revenue frozen in foreign banks, the White House said. As part of the deal, the European Union will lift a ban on insurance for tankers transporting Iranian oil, making it easier for the Persian Gulf nation’s six remaining customers to take delivery. The EU will continue to prohibit crude imports from Iran.
Officials from Indian Oil Corp., Hindustan Petroleum Corp. and Mangalore Refinery and Petrochemicals Ltd. said the removal of restrictions on shipping cover will enable them to purchase contracted volumes more easily. Still, they said they don’t intend to buy more than previously planned. The accord may put “downward pressure” on Brent prices because it will let Iran raise exports by nearly 300,000 barrels a day from last month’s level, said Olivier Jakob, managing director of consultant Petromatrix GmbH. Imports from Iran fell to 715,000 barrels a day in October, compared with 1.26 million in the previous month, the International Energy Agency said.
Shipments from the country still averaged 1.1 million barrels a day in the first nine months of this year, according to the IEA. The combined effects of oil, shipping and financial restrictions caused buyers of Iranian crude to take less than sanctions allowed, Jakob said. By loosening sanctions on insurance, the agreement will enable importers to buy their full allotments, he said.
“Oil prices will remain under pressure for the foreseeable future,” Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said in a Bloomberg television interview. “First of all, I think there will be a little bit of a knee-jerk reaction.”
The accord with Iran is a “historic mistake,” Israeli Prime Minister Benjamin Netanyahu said at a cabinet meeting yesterday. Obama called Netanyahu before departing on a trip to the US West Coast in a move to prevent the agreement from opening a rift. “While Israel and the Saudi’s won’t be happy, the oil bears will,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by e-mail today. Crude prices have declined as traders anticipated that Iran would yield, said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. It remains to be seen whether enough Iranian crude will return to the market to force their Middle East competitors such as Saudi Arabia to cut selling prices to Europe, Schork said. “This certainly sets the table for lower prices in the future,” Schork said. “But we’ll have to wait and see how much of this has already been priced in.”
Bloomberg
