Crude Oil Futures Rise as Return of Iran Supplies Seen Gradual

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Nuclear Deal Promises End to Sanctions

Oil rose on speculation that the return of sanctioned Iranian crude will be gradual following a historic accord with world powers on the country’s nuclear program.

Iran’s agreement to curb its nuclear program in return for the removal of sanctions is “the first step on an arduous path,” according to ING Bank NV. It will enable Iran to restore about 500,000 barrels a day of oil exports by mid-2016, Commerzbank AG estimates.

“The market reaction was exactly as we thought it was going to be,” said Ed Morse, the head of commodities research at Citigroup Inc. in New York. “An initial selloff, and then a rebound after that when the market realizes there is going to be no Iranian crude on the market for months.”

Restrictions on Iran will remain in place at least until United Nations monitors report on the country’s compliance with the deal in December, diplomats involved in the talks said Tuesday. A slow return to the market could mean Iranian crude arrives just in time to satisfy growing demand, rather than inflating a surplus, according to Societe Generale SA.

West Texas Intermediate crude for August delivery gained 84 cents, or 1.6 percent, to $53.04 a barrel on the New York Mercantile Exchange after falling 2.5 percent earlier. Brent oil rose 66 cents to $58.51 on the London-based ICE Futures Europe exchange.

Nuclear Program

“A substantial return of Iranian oil to the market still looks to be a long and winding road,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA, said in a report.

Full implementation of sanctions relief will be contingent on Iran meeting its obligations to curb its nuclear program and address concerns about possible military dimensions of its work. The deal sets Dec. 15 as the date for Iran to answer 12-year-old questions about its weapons capabilities.

The U.S. Congress has 60 days to review the agreement in Washington, where it will meet resistance from lawmakers who oppose making any nuclear compromises with Iran.

The sanctions, implemented in 2012, reduced Iran’s crude exports by almost half, cutting revenue from petroleum sales to a nine-year low in 2014. Iranian Oil Minister Bijan Namdar Zanganeh said in May that the nation is capable of boosting shipments by 500,000 barrels a day as soon as sanctions are lifted, and by the same amount again in the subsequent six months.

Export Trickle

Ambitions to regain full capacity or expand it won’t be possible without substantial investment by foreign oil companies, which will be reluctant to re-enter Iran until the legal implications are clearer, according to London-based consultants Energy Aspects Ltd.

“You will see a step up in production, it just may not be as large as Iranians would like or are currently suggesting,” said Richard Mallinson, an analyst at the company in London. “There is an amount there, but it is more likely to trickle out into the market rather than come out as a tidal wave.”

Record production from the U.S. and the biggest members of the Organization of Petroleum Exporting Countries means Iran could be returning to a market that just experienced the longest supply surplus in decades. Supply will exceed demand by 800,000 barrels a day on average in the second half, assuming OPEC continues to pump at current levels, according to International Energy Agency data compiled by Bloomberg.

Oil prices fell more than 45 percent in the past year as Saudi Arabia, Iran’s rival for political sway in the Persian Gulf, led OPEC in a strategy to defend market share through increased output amid rising production outside the group.

“The market had already priced in the deal because in the last few days it seemed clear that something will be done,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It will take a while for them to ramp up production. People are not expecting a lot of oil before the end of year.”

U.S. oil inventories dropped 7.3 million barrels last week, the American Petroleum Institute reported, according to ForexLive. Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, gained 420,000 barrels.

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