What the Iranian nuclear deal means for energy markets
Official cars are seen outside the Grand Hotel Wien after a Joint Comprehensive Plan of Action (JCPOA) meeting session on “Iran nuclear deal talks” in Vienna, Austria, May 1, 2021.
Askin Kiyagan | Anadolu Agency | Getty Images
A nuclear deal between the United States and Iran could push up energy prices, even if it means more supply in oil markets, according to the head of energy research at Goldman Sachs.
While it seems contradictory, a deal that brings Iranian barrels back to market could actually see oil prices rise, said Damien Courvalin, who is also the bank’s senior commodities strategist.
Talks in Vienna continue as Iran and six world powers – the United States, China, Russia, France, United Kingdom and Germany – trying to save the historic 2015 accord. Officials say there has been progress, but we still do not know when the negotiations could be concluded and oil prices have fluctuated accordingly.
A deal would lift sanctions on Iran and bring Tehran and Washington back to complying with Joint Comprehensive Plan of Action (JCPOA). The United States unilaterally withdrew from the nuclear deal in 2018 and reimposed crippling sanctions against Iran, which dealt a blow to the Islamic Republic’s oil exports.
Courvalin explained his reasoning. He pointed out how oil prices rose in April after OPEC + said it would gradually increase production from May by adding 350,000 barrels per day.
“An increase in production… is being predicted above anyone’s expectations – ours included. And yet prices are picking up, volatility is going down,” he said.
“Why? Because we have lifted some uncertainty that has been hanging over the market since last year,” he told CNBC. “Squawk Box Asia” Last week.
Investors wondered if OPEC would find itself in a price war trying to increase production, but the oil cartel presented a “compelling path for the future,” Courvalin said.
“We could argue the same for Iran,” he added. Just knowing “will probably remove some of that uncertainty.”
“If this announcement comes in the next few weeks, in our opinion, it will actually trigger this bullish revaluation,” he said at the time.
Other analysts say a deal could mean lower oil prices, at least in the short term.
Morgan Stanley said in a research note that an increase in Iranian exports is likely to level off Brent raw at $ 70 a barrel, and expects the international benchmark to trade between $ 65 and $ 70 a barrel for the second half of 2021.
Brent crude was down 0.13% to $ 71.22 on Friday in Asia, while U.S. crude futures contracts fell 0.1% to $ 68.75.
“Our view is that the initial reaction to a potential deal will be a brief sale,” Tamas Varga, analyst at PVM Oil Associates, told CNBC.
More Iranian barrels would be a headwind if a deal materializes, according to Austin Pickle, an investment strategy analyst at the Wells Fargo Investment Institute.
But the drop in crude prices may only be temporary.
“We believe that the acceleration in demand and OPEC + ‘s disciplined supply response will support oil prices,” Pickle wrote in a note, referring to OPEC and its allies.
PVM Oil Associates expects Brent prices to hit $ 80 a barrel by the fourth quarter of 2021, Varga said.
He also said it will be time before Iran starts exporting oil again and global demand may have improved significantly by the time more barrels hit the market.
While the global economic recovery has been uneven – faster in the developed world than in the developing world – oil prices will rise faster as vaccine roll-out accelerates in Asia, he added.
“The additional Iranian barrels should only delay the price recovery but not deviate it from its course,” Varga said.
S&P Global Platts Analytics believes there is room to accommodate growth in Iranian oil supply and OPEC + in the third quarter.
Towards the end of the year, however, energy prices could come under pressure as Iranian exports and US oil production increase, said Nareeka Ahir, geopolitical analyst at S&P. She said Brent could drop to mid or low $ 60 in late 2021 through 2022.
Goldman Sachs Sees Brent Crude Prices Rising At A Faster Rate, Predicts The international benchmark could reach $ 80 by the third quarter of this year.
Courvalin noted that Asia’s oil demand has been revised down due to new waves of viruses, and this has been offset by upward surprises in the United States and Europe.
“It really paints a picture where, once vaccination rates increase enough, you really see pent-up mobility unleashed and a significant increase in demand for oil,” he said. “This is… the root of the bullish outlook.”
He said supply is likely to lag behind demand and there will be “plenty of room” to absorb Iranian oil.
“In fact, if you told me Iran would not come back, our forecast of $ 80 is way too low for the direction the oil market is heading by 2022,” he added.
Concerns about a deal with Iran and the pandemic may have “masked a rapidly tightening oil market,” Courvalin said.