The biggest headline today is the nuclear weapon proliferation aka Iran nuclear deal. However, this deal has a significant side-effect on the Oil prices. Iran, as a member of OPEC and a major contributor of oil at the world stage still has major influence on oil markets.
Oil producers are still producing more oil than the world can handle, with 1.5 million barrels per day in excess capacity. Lifting sanctions on Iran could mean that the country is allowed to export oil, which could mean fresh supplies flowing into an already over flooded market and which could crush the oil prices. The prospect of permanently lowering tensions with Iran — especially in light of the Saudi Attacks on rebels in Yemen — would also push the price down substantially.
Merely the act of coming together to sign a deal has already had a huge impact on the prices. North Sea Brent crude futures, the more widely used global benchmark for oil, settled down $2.15 or 3.8%, at $54.95 a barrel, almost $1 above session low. US crude futures settled down 95 cents, or 2 percent, at $49.14 a barrel, after falling nearly $2 earlier.
India in particular is expected to increase its Iranian oil import, as the GOI has instructed refiners to cut purchases in the first quarter of this year to meet the annual targets. Its refiners will resume Iranian purchases in April, when India’s new fiscal year begins, consulting firm Energy Aspects said.
On the other hand, the failure to reach a deal could have an opposite effect. Without an agreement, there is not a peaceful resolution to the standoff between West and Iran. While talks are going on in Switzerland, tension are rising between the U.S. and the Iran on the Arabian Peninsula.
The Saudi attack on Yemen alone should not have much effect on oil markets (Yemen is only a marginal producer of oil), but the collapse of negotiations coupled with rising conflict between the U.S. and the Iran in Yemen could stroke the possibility of a future war.
The oil market could greet this situation by potentially adding a few dollars to the price of a barrel this week should the talks falter and relations deteriorate.
A nuclear deal would be great for international peace, so many hope that both sides can overcome their differences as well as hardliners in their respective countries. Whatever the outcome is, it will determine the direction of oil prices in the coming months.
(Sources: CNN Money, Economic Times)