WTI Crude Declines After Iran Nuclear Agreement

West Texas Intermediate crude fell for a second day after Iran and world powers reached an interim accord on its nuclear program.

Prices dropped 0.8 percent. The agreement signed yesterday in Geneva limits Iran’s atomic activities in exchange for as much as $7 billion in relief from sanctions over six months. The country’s oil exports will be held to about 1 million barrels a day under restrictions that remain in force.

“The Iranian deal is pushing oil prices down,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are cautiously bearish today. It didn’t solve all the problems, but it’s a first step.”

WTI for January delivery fell 75 cents to settle at $94.09 a barrel on the New York Mercantile Exchange. Volume was 8 percent below the 100-day average at 3:24 p.m. Prices ended last week’s trading up for the first time since the seven days ended Oct. 4.

Brent for January settlement slid 5 cents to end the session at $111 a barrel on the London-based ICE Futures Europe. It tumbled as much as 2.7 percent in intraday trading. The volume of all futures was 15 percent above the 100-day average.

Brent, the benchmark for half the world’s crude, was at a premium of $16.91 to WTI, the widest spread in eight months based on settlement prices. It shrank as much as $1.89 to $14.32 in intraday trading on news of the Iran accord.

Geneva Agreement

The agreement was reached after foreign ministers from the U.S., Europe, China and Russia made unscheduled trips yesterday to Geneva to push the third round of talks in six weeks to a conclusion.

“The simple fact of the matter is that there is defusion of tensions,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “The price of Brent is effectively a barometer for geopolitical concerns.”

In return for Iran limiting its nuclear program, the interim agreement provides for the release of $4.2 billion in frozen oil assets and will let Iran continue exporting oil at current levels, rather than forcing continued reductions by buyers, as would be required under current law, according to a White House statement.

Israeli officials and some U.S. lawmakers have said sanctions on Iran should be tightened rather than eased.

“It’s nothing concrete, but it’s a good first step,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.

OPEC Producer

Iran was the sixth-largest producer in the Organization of Petroleum Exporting Countries last month, with 2.6 million barrels a day, according to a Bloomberg survey. That’s down 565,000 barrels from June 2012, when it was ranked second.

Sanctions have cost Iran $120 billion in lost revenue since the U.S. and European Union started imposing penalties on energy, ports, insurance, shipping, banking and other Iran-related transactions in 2010, according to U.S. Treasury estimates.

Brent’s earlier drop was excessive as the agreement kept oil-export sanctions in place, said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

“The initial excitement subsided,” he said. “We still have a long way to go, and the market is having some skepticism.”

Iran’s Buyers

Under U.S. embargoes that started Feb. 6, Iran’s six remaining buyers -- China, India, Japan, South Korea, Turkey and Taiwan -- can buy its oil only with their own currencies, not dollars or euros, and must bank those payments in accounts that Iran uses to purchase local goods from the trading partners.

“This is a six-month agreement and it’s really too early to tell any possible outcome,” Maria van der Hoeven, executive director of the International Energy Agency, told reporters today in Moscow. “What we do know is that the agreement does not directly affect oil sanctions in a big way.”

The volume of Iranian crude oil available to the international market will “remain largely unchanged over at least the next six months,” Goldman Sachs Group Inc. predicted in a report published today. Morgan Stanley said in a note that any “substantial weakness” in prices following yesterday’s announcement of a deal would be an “overreaction.”

Brent had “a knee-jerk selloff,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “The market is skeptical that this is as bearish as it would seem to be.”

Implied volatility for at-the-money WTI options expiring in January was 17.5 percent, up from 16.1 percent in the previous session, according to data compiled by Bloomberg.

Electronic trading volume on the Nymex was 490,584 contracts as of 3:25 p.m. It totaled 507,901 contracts on Nov. 25, 11 percent below the three-month average. Open interest was 1.62 million contracts.

Before it's here, it's on the Bloomberg Terminal.