November 26, 2013

Iran nuke deal could push oil prices lower

By Jonathan Fahey
The Associated Press

(Continued from page 1)

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Oil pumps work in the desert oil fields of Sakhir, Bahrain. Oil prices could be headed lower after the preliminary nuclear deal between Iran and six world powers, even though it does not loosen sanctions on Iran’s oil exports.

AP File Photo

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Last weekend’s preliminary deal does not change those sanctions, which the White House says cost Iran up to $5 billion per month. The deal, the White House says, allows “purchases of Iranian oil to remain at their currently significantly reduced levels.”

But the Geneva deal may make it easier for Iran to sell the oil allowed under the sanctions. ClearView’s Book estimates that Iran could increase sales by about 285,000 barrels per day over the next month before reaching the 1 million barrel per day limit allowed by the sanctions.

While modest, that could help lower global prices by making up for a sharp drop in Libyan crude exports in recent months caused by civil unrest.

The simple fact that the two sides reached any agreement at all will also help reduce prices. Oil has been more expensive in recent years in part because traders worried that the heightened tensions between Iran and the West would lead to a sudden interruption of oil supplies. Iran in the past has threated to block or attack oil shipments through the Strait of Hormuz, a narrow passage in the Persian Gulf through which one-fifth of the world’s oil passes.

Also, traders worried that the West would further tighten limits on Iran’s oil exports. While those limits won’t be loosening soon, the threat of even less Iranian oil on the world market has all but evaporated – for now.

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