Oil prices drop after Iran’s nuclear deal

MEMO | November 25, 2013

Oil prices dropped on Monday morning in Asia’s exchange markets after Iran and world powers reached an agreement over Tehran’s nuclear programme. Iran holds the fourth largest oil reserves in the world. Brent price fell by 2.26 per cent, or $2.51 down to $108.54 per barrel, while US light sweet crude fell by 89 cents to $93.95 per barrel (a less than one per cent decline).
After five days of intense negotiations, the major world powers and Iran announced a deal on Saturday evening stipulating that Iran will curb its nuclear activities in return for an easing of the economic sanctions against it. The interim deal paves the way for a new phase of negotiations in six months’ time. Western countries and Israel suspect Tehran of secretly developing nuclear military capabilities behind its civilian programme, but this is a claim that Tehran denies.
The oil markets had been intensely following the negotiations in Geneva. Economic analysts believe the deal could eventually lead to lifting the ban on Iran’s oil exports, which would supply the markets with a million additional barrels a day and help to reduce oil prices, which have dramatically risen as a result of the Iranian crisis and the geopolitical unrest in the Middle East.
Victor Shum, the managing director of IHS Purvin & Gertz Group in Singapore, observed on Monday that: “the impact of the deal on the global oil supply will be limited in the short term because the majority of the sanctions remain.”
Experts also confirmed that if sanctions are indeed lifted, then Iranian exports will increase while Saudi exports will decrease. Both Iran and Saudi Arabia are members of the Organisation of Petroleum Exporting Countries (OPEC).
An oil expert told the Dow Jones newswire that the agreement “does not mean that we will see an influx of oil exports in the markets, because Iran is a member of OPEC and any increase in the Iranian oil supply should be done within the quota system.”

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