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However, a closer look at the fact sheet released by the US government and the reaction in the market reveals that prices are unlikely to fall further, at least not on account of the Iran deal. The sheet reveals that the intention of the world power was to get closer to the nuclear reactors for inspection rather than allow Iran to get closer to the market.
Here are five reasons why the Iran deal is a non-issue for the oil markets.
1. As per the deal revealed by the US government , Iran will not be allowed to increase its exports of crude oil in the global market. All that Iran will get in exchange of stopping enrichment of its Uranium is access to $7 billion of oil revenue frozen in foreign banks. Vast majority of Iran's approximately $100 billion in foreign exchange holdings are inaccessible or restricted by sanctions, says the White House Press Release. In fact an Iranian News Website (click here) puts it in perspective from the country's point of view by saying that there is a "pause in efforts to further reduce Iran's crude oil sales, enabling Iran's current customers to purchase their current average amounts of crude oil."
2. The deal has lifted a ban on insurance for tankers transporting Iranian oil, making it easier for the Persian Gulf nation's six remaining customers, including China and India, to take delivery of oil. India was unable to lift its entire crude oil 'contracted' purchase since ships were not available to transport oil as no insurance company was willing to underwrite it. As a result of this logistical issue, Iran has been storing crude oil in tankers. It is reported that Iran's floating storage stands at 37 million barrels of oil, but this oil cannot be released into the market fully until sanctions on sales are fully lifted. In short,the excess of earlier months will not be hitting the market and depressing prices. Iran's export in the month of October had fallen to 715,000 barrels a day from over 1 million barrels a day in the previous month on account of non-availability of insurance and ships to carry it.
3. Key limitations of Iran's oil sales remain, which include a ban on exports to European Union. This will not be lifted for the next six months and that too only if the final settlement is reached.
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4. Before the sanctions were imposed, Iran used to export 2.5 million barrels a day. This level is unlikely to be reached soon even if the sanctions are lifted as the country will take nearly a year to increase its production. Even if the production is increased to the initial level, Saudi Arabia, the key member of the oil cartel OPEC had earlier hinted that it would reduce its own production to control supply in world market. Saudi Arabia needs a price of over $100 per barrel to balance its budget and would not like to see the price nearing that level.
5. The gap between Brent crude -- the benchmark for nearly half the oil produced and consumed especially in the middle east region, and Nymex crude -- an indicator of crude prices in Americas has widened to $16.91 a barrel, an eight month high. This signals that Nymex has fallen more than the Brent. This shows that the Iran factor is not so important as the US slowdown thus increasing oil and gas output in the continent.
