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[SINGAPORE] Oil prices rose on Wednesday as investors recognised it would take time for Iran to ramp up oil exports after its nuclear deal with six world powers, although an ongoing global crude glut kept a lid on gains.
Under the nuclear deal reached on Tuesday, sanctions imposed by the United States, the European Union and the United Nations are to be lifted in exchange for curbs on Iran's nuclear programme. While oil prices initially fell on the news, they recovered later as it became apparent the deal would not immediately lead to a flood of new supply.
Brent crude was up 27 cents at US$58.78 a barrel by 0529 GMT. US futures were up 18 cents at US$53.22. "New oil will not flow from Iran until 2016 and there will probably be less of it than optimists predict," said Richard Nephew, Program Director for Economic Statecraft, Sanctions and Energy Markets at the US Center on Global Energy Policy. "I estimate 300,000-500,000 new barrels of oil on the market within 6-12 months after a deal begins to be implemented." Morgan Stanley said most assessments saw 500,000-700,000 barrels per day (bpd) of new supply by the first half of 2016.
Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC) has some of the world's biggest oil reserves. It exported almost 3 million barrels per day (bpd) of crude at its peak, before Western sanctions over its alleged ambitions to build a nuclear bomb saw shipments collapse to about a million bpd over the last 2-1/2 years.
Analysts, however, cautioned that the general outlook for oil markets was for prices to remain low and perhaps fall further. "We view the 2016 prospects for higher OPEC production including from Iran as a growing downside risk to our oil price forecast," Goldman Sachs said.
Goldman's current oil price forecast is for Brent to average US$58 in 2015 and for US$62 next year, while it expects US crude to average US$52 and US$57 this year and in 2016, respectively.
ANZ bank said the Iran deal "comes at a time when markets are looking for supply cuts. This is likely to keep downward pressure on prices over the medium term".
Traders are also keeping an eye on China for cues on the health of the economy. A savage correction shaved about 30 per cent off country's stock market since last month before support steps by Beijing helped stem the freefall.
China, one of the world's top energy consumers, reported stable economic growth on Wednesday at an annual rate of 7 per cent.
French bank Natixis said there was a risk of oil prices falling further if China's economy slowed further while global oil production stayed close to its near record highs.