Crude prices slipped more than 4% on news that Iran and Six world powers had reached an interim deal to constrain the country’s nuclear program in a move that could see the Islamic nation, with some of the biggest oil reserves, flood an already gutted market.
Brent, the global benchmark slid below $55 a barrel on news of the accord reached in Lausanne Switzerland. It then pared cuts to sell just above $55 a barrel on the weaker dollar.
The benchmark was also weighed down by news by the US Energy Information Administration that America’s commercial stocks in crude grew by 4.8 million barrels.
The drop in crude prices was eased slightly by the conflict in Yemen the involvement of Saudi Arabia- the biggest OPEC oil producer.
Economic sanctions on Iran are unlikely to be lifted until the completion of the definitive agreement which is expected by June’s self imposed deadline.
“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,” Helima Croft, head of commodity strategy at RBC Capital Markets, told The Guardian
French Bank in a note indicated that even after the sanctions are lifted in June; it would take an additional three months to restore the expected 1 million barrels of oil a day.
“Iranian crude will not become a major issue for the oil markets until 2016,” the bank said.
Traders expect the initial crude exports by the Iran to be from its stockpiles. Oil tanker market sources told the Wall Street Journal earlier last month that the country was storing more than 30 million barrels in its fleet of tankers.
“Iran-owned tankers have nothing better to do anyway, given that they are themselves strangled by U.S. sanctions,” Ralph Leszczynski, research director at Italian ship broker Banchero Costa, told the Wall Street Journal.
“Many of these are being used to store crude instead.”
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