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Oil prices finish higher after Iran deal

Oil prices rose on Tuesday as markets weighed the effects of Iran's deal with six world powers on curbing the Islamic republic's suspected ambitions for a nuclear bomb.

[LONDON] Oil prices rose on Tuesday as markets weighed the effects of Iran's deal with six world powers on curbing the Islamic republic's suspected ambitions for a nuclear bomb.

US benchmark West Texas Intermediate for August delivery gained 84 cents at US$53.04 a barrel on the New York Mercantile Exchange.

European benchmark Brent oil for August delivery added 66 cents at US$58.51 a barrel in London.

"I think people had already sold down the price of oil, expecting an agreement," said Michael Lynch, an analyst with the US-based consultancy Strategic Energy & Economic Research. "So it's a case of selling on the rumour and buying on the news." "Now that it's actually happened, people are buying back in," Lynch said.

Analysts said the landmark agreement that will see sanctions eventually lifted on Iran's oil exports would help to put a lid on any rise in crude futures this year and in the future.

"To be clear, the return of Iranian oil exports over the next year is one factor likely to keep oil prices low," said Thomas Pugh, commodities economist at consultants Capital Economics.


Major powers - Britain, China, France, Germany, Russia and the United States - clinched a historic deal Tuesday aimed at ensuring Iran does not obtain the nuclear bomb, opening up Tehran's stricken economy and potentially ending decades of bad blood with the West.

Reached on day 18 of marathon talks in Vienna, the accord is aimed at resolving a 13-year standoff over Iran's nuclear ambitions after repeated diplomatic failures and threats of military action.

The deal puts strict limits on Iran's nuclear activities for at least a decade and calls for stringent UN oversight, with world powers hoping that this will make any dash to make an atomic bomb virtually impossible.

In return, painful international sanctions that have slashed the oil exports of Opec's fifth-largest producer and choked its economy will be lifted and billions of dollars in frozen assets unblocked.

However, analysts cautioned that it will take time for additional Iranian oil to hit markets.

"Iranian crude oil production is likely to increase in 2016 but will take a number of years to reach its previous peak," Fitch Ratings said in a client note on Tuesday.

"Iran's oil exports at the moment are around 1.1 million barrels per day versus levels of around 2.5 million before 2012," it noted.

The ratings agency added: "We would expect to see some increases in production throughout the course of 2016 but that this would be less than half of the full 1.4 million barrels daily that was lost.

"The remainder will require significant investment and expertise, for which Iran is likely to want to partner with international oil companies." A spokesperson for Royal Dutch Shell said the energy giant is "interested in exploring the role Shell can play in developing Iran's energy potential".

BP added in a statement: "We are watching the situation and in the meantime we continue to comply with sanctions. We will look at opportunities once able to do so."


Looking ahead, "the extent of the impact on oil prices will depend primarily on the domestic capability to get oil on the market", said Nina Skero, economist at the Centre for Economics and Business Research.

"We expect Brent crude to... trade around $60 per barrel for the remainder of the year," she added.

World oil prices collapsed by 60 per cent between June 2014 and January when it hit a low of US$45. This in part was owing to excessive supplies caused by the boom in US shale oil.

While Opec on Monday revised upward its forecast for global crude oil demand growth for this year, it warned that crude output would also continue to increase.

Iran's Opec peers Saudi Arabia and Iraq "have both significantly ramped up production this year", noted Richard Mallinson, analyst at research group Energy Aspects.

"There is little chance that these countries, and other Opec members, are going to reduce output to make space for a return of Iranian production," he told AFP.