Oil heads lower after Iran nuclear deal raises chance sanctions will be lifted

The price of oil dropped to near US$94 a barrel Monday as a deal between Iran and six world powers on the country’s nuclear program raised the possibility that sanctions choking Iranian oil exports will be lifted.

Benchmark West Texas Intermediate crude for January delivery fell 75 cents to close at US$94.09 in New York. Brent crude, a benchmark for international oil used by many U.S. refineries, slipped half a cent to US$111 a barrel in London.

The preliminary agreement reached in Geneva Sunday between Iran and the U.S., Britain, France, Russia, China and Germany over Iran’s nuclear program does not allow Iran to increase oil exports. But by relaxing some financial restrictions the agreement does make it easier for Iran to sell the oil it is permitted to.

It also removes, for now, the threat of further restrictions on Iranian exports and sets up the possibility that a more comprehensive deal will be struck in the coming months.

The diminished threat to global supplies is likely to make crude cheaper in the short term. And if more Iranian oil returns to international markets, the additional supply is likely to make crude less expensive over the longer term.

“With new domestic output capacity coming on line, plus the potential re-emergence of Iranian barrels coming onto the global market, the table is set for lower prices over the longer term,” energy analyst Stephen Schork said in a market commentary.

For now, analysts expect Iran’s oil exports to remain at around one million barrels a day, with most of the flow soaked up by Asian countries like China, India and Korea. That is still far below the 2.5 million barrels a day Iran was exporting in 2011, before sanctions began.

“Iran is still a long way from resuming full oil exports, but the prospect is already being priced in the market,” analysts noted in the Kilduff Report edited by Michael Fitzpatrick.

In other energy futures trading on Nymex, wholesale gasoline fell 3.75 cents to US$2.67 a U.S. gallon (3.79 litres), heating oil fell less than a penny to US$3.03 a gallon and natural gas rose 3.1 cents to $3.84 per 1,000 cubic feet.

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