The nuclear agreement announced on Tuesday between Iran and global powers is being called historic and monumental. But in the oil market, it looked pretty ... blah.
Now that oil and financial sanctions will start rolling back in exchange for curbs on Iran’s nuclear program, supertankers full of the country’s oil are poised to hit the market for the first time in years. And the market already has too much oil to begin with, thanks to an OPEC price war and sluggish demand.
Yet Brent crude reversed a 2.5 percent drop in the hours after the deal was announced to settle up 1.1 percent. Why are traders unimpressed?
For one thing, people saw this coming. Negotiators have been on the brink of a deal for weeks, so bets on the return of Iranian supplies were already reflected in oil prices. Leading up to the accord, hedge funds and other speculators placed the most bets on falling prices since April, according to data from the Commodity Futures Trading Commission.
Furthermore, Iran’s exports aren’t likely to come surging back into the market all at once. The sanctions will only peel back after inspectors verify that Iran has met certain conditions. It also takes time to turn up production and arrange more shipments. In the longer term, Iran needs help from foreign investors to boost output after years of lacking funds and expertise.
The drawn-out timeline helps explain why near-term prices were able to rise despite the news. Contracts for delivery further in the future, however, aren’t doing as well. Clearview Energy Partners LLC, a consulting firm in Washington, estimated that Iranian supplies could cut prices by $12 a barrel by the end of 2016.