Oil prices tumble as Iran, global powers reach nuclear deal

[LONDON] Oil prices dropped on Tuesday after Iran and six global powers reached a landmark nuclear deal that would see an easing of sanctions against Tehran and a gradual increase in its oil exports.

The agreement, which capped more than a decade of on-off talks, was hailed by US President Barack Obama as an opportunity worth seizing while Iranian President Hassan Rouhani said it marked a new phase in international relations.

Under the deal, sanctions imposed by the United States, European Union and United Nations would be lifted in exchange for curbs on Iran's nuclear programme.

There were no immediate details on how sanctions would be eased on oil.

Front-month Brent crude futures had dropped 55 cents to US$57.30 a barrel by 1137 GMT, paring some of their losses after earlier hitting a session low of US$56.43 a barrel. US crude was trading down 60 cents at US$51.60 per barrel.

Analysts say it would take Iran many months to fully ramp up its export capacity following any easing of sanctions. But even a modest initial increase would be enough to pull international oil prices down further as the market is already producing around 2.5 million barrels per day above demand.

"Even with a historic deal, oil from Iran will take time to return, and will not be before next year, most likely the second half of 2016," Amrita Sen, chief oil analyst at London-based consultancy Energy Aspects, told Reuters. "But given how oversupplied the market is with Saudi output at record highs, the mere prospect of new oil will be bearish for sentiment."

Sanctions on the Islamic Republic have almost halved its exports to a little over 1 million barrels per day. A deal could see Iran increase its oil exports by up to 60 per cent within a year, a Reuters survey of analysts said.

A rise in Iranian crude exports could put further pressure on the market. "It is hard to imagine Saudi Arabia surrendering market share to its arch enemy," Carsten Fritsch, senior oil and commodities analyst at Commerzbank told the Reuters Global Oil Forum. "In the case of a price war we could see oil prices to drop below $50 a barrel again." Several of the world's biggest oil companies have held talks with Iranian officials in Tehran in recent months to discuss cooperation following the easing of sanctions.

Royal Dutch Shell said on Tuesday it was interested in doing business in Iran. "Strictly within the boundaries of the law, we are interested in exploring the role Shell can play in developing Iran's energy potential," a spokeswoman said.

REUTERS