Oil slides after agreement with Iran

Iran's agreement on Thursday with world powers over its nuclear activities brings the Opec member closer to achieving its goal of restoring oil production and exports, but the time frame remained unclear.

Diplomats aim to reach a final deal by June 30. Under the accord the US and EU would lift economic sanctions if the International Atomic Energy Agency can confirm Iran has taken the necessary steps to curb its nuclear advances.

"For the oil market, this means that - if a deal moves forward and is successfully implemented - more Iranian oil will be coming onto the market," said Richard Nephew director of the economic statecraft, sanctions, and energy markets programme at Columbia University and the former deputy co-ordinator for sanctions policy at the US State Department.

Sanctions have crippled Iran's economy, dramatically reduced production to 2.8m barrels a day as well as exports which are half their 2011 levels, at about 1.1m b/d.

The prospect of a wave of Iranian crude exports being released into an already oversupplied market in the months following a comprehensive deal sent the price of internationally traded Brent crude lower by 3.8 per cent to $54.95 a barrel.

But a number of obstacles need to be overcome before more Iranian oil can legitimately come to market.

"From an oil market fundamentals perspective, it is a case of 'as you were' at least until the end [of June]," said analysts at JBC Energy. "Even if a framework deal can be successfully converted into a more permanent agreement . . . it is not clear if oil sanctions would be among the first measures to be lifted."

Many observers say that there is a risk that a deal may not be reached despite progress made by negotiators in Switzerland.

Mr Nephew added, domestic political circumstances in Tehran and Washington could still unravel any progress; the number of technical steps that need to be taken by Iran in order for sanctions to be lifted need to be accounted for; and the bureaucratic and physical limitations on the country's oil industry that for so long has been operating at a hugely slower rate would need to also be resolved.

But even if a deal is signed, "sanctions relief is unlikely to begin for at least six months to a year after a deal is signed in June 2015", said Richard Mallinson, geopolitical analyst at London-based consultancy Energy Aspects.

Even so, Facts Global Energy, the consultancy, said Iranian oil production could rise by 500,000 b/d in three to six months after sanctions are lifted and 700,000 b/d within another year.

Iran's rivals within Opec, especially the cartel's largest producer Saudi Arabia, have voiced displeasure about any resolution of the 12-year stand-off between Persian Gulf country and the west. Oil experts in the Middle East have said both the Kingdom and its Gulf allies are wary about more Iranian oil coming back into the market at the same time as higher levels of Iraqi supplies, creating greater competition for exports.

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