Riyadh, Asharq Al-Awsat—Global oil prices initially decreased on Monday following the announcement of Iran’s nuclear deal with the P5+1 group of states, only to rebound on Tuesday on the back of strong US housing data and a general consensus that the Geneva deal will bring no immediate increase in Iran’s oil exports.
Brent crude fell by almost USD 3 per barrel in early trading on Monday, but rose to USD 111.20 per barrel by Tuesday afternoon after analysts agreed that the Geneva deal will have little short-term impact on the market.
Asharq Al-Awsat spoke with expert energy analysts to consider the significance of the Geneva nuclear deal and its affect on oil prices in the Middle East and rest of the world.
Analysts agreed that the deal is unlikely to affect oil production in the long term, and that OPEC states will not be adversely affected. The experts agreed crude oil producers will be unaffected so long as prices remain between the USD 80 and 100 mark, but clarified that shale oil producers could be affected.
Although experts recognize that Iran is considered one of the leading crude oil producers, international economic sanctions on Tehran have severely restricted its ability to export its oil.
Aqeel Al-Anazi, an expert on oil production, spoke to Asharq Al-Awsat about the market fluctuations that followed the nuclear deal. He said: “The current changes are very limited, and it will not affect crude oil-producing states who consider USD 80 a fair price per barrel. However, the same cannot be said for shale-producing countries.”
Anazi said that oil prices dipping below USD 100 would be a problem for shale-producing states, adding that the rising cost of production makes shale-producing states more vulnerable to declining oil prices.
The Saudi oil production expert dismissed claims that China deliberately reduced its oil imports, saying that move would not be in Beijing’s interests. He said: “Declining demands will lead to higher prices, and China is not advocating this. Moreover, European demand for oil will increase in the coming period, in accordance with preparations for the winter season, which will in turn fill the gap of decline in current global demand.”
Oil experts confirmed that the Geneva deal will not affect supply or demand, adding that the interim agreement does not permit Iran to export oil to pre-sanction levels until the six-month preliminary phase has ended. The experts added that any increase in Iranian oil exports would be gradual.
Oil markets closely monitored events in Geneva, which ended after five days of intense negotiations with an announcement that Iran and the P5+1 had finally reached an interim agreement. Tehran agreed to curb its nuclear program in return for sanctions relief, marking a new breakthrough in negotiations.
The deal ran contrary to China and India’s strategies for energy stockpiling, with the size of China’s oil stockpiles expected to reach 150 million barrels by the end of this year.
Market specialists who spoke with Asharq Al-Awsat previously anticipated that the global market may witness an excess in supplies of up to 900,000 barrels per day.
“This surplus is based on some of the large states purchasing and then strategically storing oil. At the forefront of all these states are China and India,” one specialist said.
Energy affairs expert Ni’mat Abu Al-Souf informed Asharq Al-Awsat that some countries that have high levels of consumption are pursuing stockpiling strategies irrespective of pricing.
“The strategy to increase the reserves is to confront market fluctuations or the reduction in supply, amid high consumption in these countries,” he said.
China produces around 4 million barrels of oil daily while it consumes 10 million barrels per day, therefore, it needs to be prepared for any interruption or reduction in supply,” he added.