Prepare for $30 Oil, Says Analyst, as Iran Strikes Deal Over Nuclear Sanctions

Tuesday July 14, 2015

Oil prices were soft Tuesday as news emerges that Iran has reached a deal with the so-called P5+1 global powers over sanctions aimed at limiting its nuclear programme, CNBC reports.

The P5+1 (US, UK, France, China and Russia plus Germany) were reported to have reached agreement to lift sanctions against the Islamic Republic earlier today in Vienna.

"Today is a historic day," a senior Iranian diplomat told CNN.

The lifting of sanctions is widely anticipated to add further downward pressure to crude futures, especially as the Organization of Petroleum Exporting Countries (OPEC) is said to already be over-producing by as much as 2.5 million barrels per day.

Last month Iran told members of the OPEC to "make room" for an estimated additional 1 million barrels a day of supply that it intends to produce within six months of sanctions being removed.

However some are predicting it could be more than a year before Iranian oil comes back into the market.

"Even with a historic deal, oil from Iran will take time to return, and will not be before next year, most likely the second half of 2016," Amrita Sen, chief oil analyst at London-based consultancy Energy Aspects, told Reuters.

"But given how oversupplied the market is with Saudi output at record highs, the mere prospect of new oil will be bearish for sentiment."

$30 Oil, $158 Bunkers

Analyst Carley Garner says that those betting on the price of oil should be prepared for prices to slide as low as $30 per barrel, or $226 per metric tonne (pmt).

In such an event, bunker buyers could reasonably expect IFO380 prices to fall as low as $158 pmt, given that the product has historically been priced at between 70 and 75 percent of crude.

"Now, if there is one thing you need to keep in mind as the price of oil tumbles, it is that this is very much an issue of excess supply," explained Garner, who believes that barring an "unforeseen powerful event" that the oil market will be over-supplied for a long time.

Perhaps more importantly, Garner says that "big money" speculators have used about 70 percent of their buying power on futures contracts betting the price will go higher.

If oil prices fail to improve over the coming months, that could trigger a massive sell off, she says.

Should oil fall below $50.50, Garner predicts it could easily fall to $41.40 a barrel, and then if it breaks that level, quickly drop to the mid-to-low $30 range.

Earlier this month Mohammad Saeednejad, Managing Director for Iran's Ports and Maritime Organization (PMO) said it has allocated $500 million to invest in the development of bunkering infrastructure in the Persian Gulf.