What Iran deal means to Brent

Nuclear negotiations are in progress and dead line to reach a solution stands at 31^st March 2015.

• Talks might tilt on either side, as some participants say that the deadline could be extended. Some saying sanctions to stay in place until concrete steps taken whereas others say some sort of deals with temporary removal of sanctions is a possibility.

• High possibility is that whatever the solution may be, might be a volatile one for crude, especially the Brent. Middle East producers use Brent as benchmark to price their crude unlike North and Latin American ones who use WTI.

• If sanctions are removed even temporarily vast amounts of Iranian crude will flood the oil market.

Will lower price be a concern for Iran?

Not likely.

• Iran is a low cost oil producer with average cost of production below $50/barrel.

• Moreover vast amounts of oil are already stored in tankers in Iran, ready to be dispatched. Their major concern is to get as much dollar and revenue possible since cost has already been undertaken.

Commentaries -

• France and UK has warned against any short term or temporary deals and asked for robust coverage, so that Iran's nuclear weapon ambition can be put off for longer period.

• Iran's President Mr. Hassan Rouhani on Saturday raised the possibility of a deal and said that there is nothing that can't be resolved.

• Israel's president Mr. Benjamin recently spoke in US congress against a deal in Iran that fails to prevent Iran's nuclear ambition. President Obama can lift sanctions on Iran only temporarily and need approval from Congress for permanent actions.

Iran's natural resources -

• Iran has world's second largest proven natural gas reserve only second to Russia. It also holds 10% of the proven crude oil reserve in the world.

Sanctions impact -

• Sanctions have downsized Iran's production to 2.8 million barrels/day from 3.6 million barrels/day in 2011.
  
  
• Moreover halved the export to 1.1 million barrels/day. Latest news and comment on the global economic and political consequences of tumbling oil prices.

Impact on oil market -

• Iran stands ready to increase export by at least within two months. Iran also plans to increase production to 5million barrels/day.
  
  
• Iran has argued that OPEC will have to make room for Iran's production when Saudis are pumping so much.

Brent could remain tense until some concrete news over the negotiations hit the market. Any major lift off might push Brent and its spreads further down. Brent is currently trading at $55/barrel.