Oil prices have come under fresh pressure after the historic deal on Iran’s nuclear programme raised the prospect of the country being allowed to increase its crude exports.
Traders had been watching closely the marathon talks in Switzerland for any signs Iran would be given the green light to resume its position as one of the world's biggest crude exporters, flooding an already oversupplied oil market.
Iran has a backlog of oil ready to hit global markets and is thought to have about 30 million barrels in a fleet of supertankers anchored off its coast.
The tentative framework announced on Thursday paves the way for international sanctions against Iran to be lifted in exchange for new limits on its nuclear capabilities. Hailed by US president Barack Obama as a "historic agreement", the framework provides the basis for a more comprehensive nuclear agreement that is hoped will be reached by June 30th.
Next year
However, analysts are sceptical that the breakthrough will result in greatly expanded exports for Iran in the immediate future, predicting that sanctions may not be lifted until next year. But there was a sharp reaction in financial markets.
The price of a barrel of Brent crude, which has already dropped by half since a peak last summer, fell $2.15, or 3.8 per cent, to $54.95. Sanctions have more than halved Iran’s oil exports to about 1.1m barrels a day from 2.5m a day in 2012.
Analysts predict that in the event of restrictions being lifted it will take time for Iran to raise output and return to such export levels. But there are signs it has a significant backlog of unsold crude ready to roll out to international buyers – much of it parked in floating storage off the coast. Oil tanker market sources last month told Reuters that Iran was storing at least 30m barrels on its fleet of supertankers.
Economists say the prospect of oil prices staying low on the back of ample supply will be a fillip for economic growth in many countries in the coming year, thanks to lower costs for businesses and consumers. Bank of England governor Mark Carney has described the sharp fall in oil prices as "unambiguously positive" for the global economy and for the UK.
The fall in the price of crude oil, which plunged from $115 a barrel last June to below $50 in January, has already fed through to lower prices for consumers.
At the same time, low oil prices have led to warnings about jobs and tax revenues from North Sea oil and gas companies grappling with rising costs.
Against the backdrop of oil company profits being hit by the global glut, British chancellor George Osborne used his final budget before the election to cut taxes on the industry.
Market strategists caution that reaching that final agreement by the end of June will be fraught with obstacles.
Perilous
Helima Croft, head of commodity strategy at RBC Capital Markets, said the framework as it stood appeared "very broad and lacking a lot of specifics".
“We believe the road to a final deal is still perilous and the most immediate threat is further [US]congressional action on Iran in mid-April. This framework may not be enough to keep congressional critics at bay. The oil market is underestimating the remaining challenges to a final deal,” she said in a research note.– (Guardian)
