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Oil prices drop on hopes of Iran nuclear deal, low spare storage capacity

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Reuters SINGAPORE

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices fell on Monday as spare oil storage capacity runs low and a potential agreement in nuclear talks with Tehran opened the prospect of more Iranian exports, should sanctions be eased.

U.S. crude fell to $43.57 in early trading, its lowest since March 2009, before rebounding to $44.19 by 0658 GMT, still down 65 cents. Brent was trading at $54.26 a barrel, down 41 cents.

Western powers are hoping for concessions from Tehran that could help clinch a political agreement in nuclear talks this week after the United States and European powers voiced a willingness to compromise on suspending U.N. sanctions, which also affect oil exports.

 

"The prospect of an increase in Iranian oil sales as part of a new agreement in the next couple of months will only exacerbate OPEC oversupply, supporting our bearish outlook," Barclays said.

The World Petroleum Council said that the low prices would lead to investment cuts.

"The oil price is now below a level which allows companies to explore and produce in the most difficult areas. So that will lead to the situation that some investment has to be cut," its President Jozsef Toth told Reuters in Seoul, South Korea, on Monday.

The price falls were further supported by diminishing storage capacity and because of the strong U.S. dollar.

China has been taking advantage of low prices to build up its strategic petroleum reserves (SPR) but analysts say new spare capacity will only become available later this year, denting near-term import needs.

U.S. spare capacity is also running low. "Bearish comments from the International Energy Agency that the U.S. might soon run out of empty tanks to store crude and a suggestion that global supply was up 1.3 million barrels per day in February year on year at 94 million barrels weighed on sentiment," ANZ said.

Goldman Sachs said that a falling U.S. rig count would only translate into slightly lower production in the second quarter of this year.

Oil prices are also under pressure from the strong U.S. dollar, which remained close to multi-year highs. The Fed's policy-setting committee meets this week with the expectation that it could tighten monetary policy as soon as June.

A stronger greenback makes dollar-denominated oil more expensive for holders of other currencies.

(Additional reporting by Keith Wallis in Singapore and Meeyoung Cho in Seoul; Editing by Richard Pullin)

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First Published: Mar 16 2015 | 1:40 PM IST

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