What I think the Iran nuclear deal could do to crude oil prices

The Iran nuclear deal that was recently agreed provisionally on Thursday could do many things to the price of oil, but what it definitely means is an influx of supply at some point down the line – close to 2 million extra barrels a day, in fact. This influx of supply is set to lower the price of oil as supply further outstrips demand. Some are saying that oil could fall to $30 a barrel soon enough. However, some may remain uncertain that the deal will even be agreed, with a deadline set at July 30 for a final deal to be agreed or waved away.

However, as Colin Cieszynski, chief market strategist at CMC Markets, said: “An outline of an understanding is a good start anyway, but not a final deal. [The] news conference could send oil lower if it includes a clear timetable for when more sanctions are to come off and oil released into the market place. Otherwise, much of the reaction may already be in the market.” As we do not know when Iran will be allowed to export vast reserves of oil, the supply will not change soon, and this means that the price of oil will, therefore, not substantially change right now.

Moreover, as the market was already expecting the framework of a deal to be announced, the reaction in the market will be limited, and, as such, the actual announcement will not affect prices that much. Further to this, even if the sanctions against Iran are lifted, they will not be allowed to export oil for at least another year, so if one is investing for the short term, they do not need to worry, because the long term repercussions are more poignant than the short term reactions.

It may, also, be difficult for Iran to meet the requirement of clarifying whether they conducted research on missile-borne nuclear warheads. Taking all of these important factors into account, the Iran nuclear deal will not, in my opinion, have a profound effect on oil prices for now, but a year from today, that could be a very different story.

By Shrey Srivastava

A finance and economics enthusiast, and someone who wants to share his views with the world.

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