What Iran’s nuclear talks mean for oil prices

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While the oil market has seen some volatility on the news from the multi-party talks taking place in Vienna with the goal of getting the United States back to the 2015 nuclear treaty with Iran, don’t expect much quick progress. Here’s a look at what’s at stake:

What’s happening? In 2018, then-President Donald Trump pulled the United States out of the 2015 Joint Comprehensive Plan of Action, also known as the Iranian nuclear deal, which put limits on the country’s nuclear enrichment efforts. Despite the International Atomic Energy Agency saying Iran was largely complying with the deal, Trump reimposed previous sanctions and added new ones in what the administration called a maximum pressure campaign. Iran responded by breaching the terms of the agreement, increasing its nuclear capabilities. Its arsenal of enriched uranium has grown significantly, according to the International Atomic Energy Agency, but remains well below levels seen before the 2015 agreement.

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RBC Capital Markets

Negotiators from other nations who signed the JCPOA (Russia, China, France and the United Kingdom) began meeting in Vienna on Tuesday with the aim of getting the agreement back on track. US negotiators were present, but did not meet face-to-face with Iranian officials. Instead, European negotiators have served as intermediaries. See: White House Sees ‘Long Process’ As Nuclear Talks With Iran Resume How Far Is The United States And Iran? Both the United States and Iran have insisted that the other side must act first. US officials appeared to be softening their stance slightly ahead of the talks, Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a note Monday, citing an April 2 television interview with Robert Malley, the US special envoy to Iran. . Notably absent were the emphatic statements that Iran must take the first step and reverse all breaches of the JCPOA and that there was no urgency to reach an agreement. This potentially leaves the door open for simultaneous face-saving action by Washington and Tehran, ”Croft wrote. A significant move in the talks would make the prospects for a return of large amounts of Iran’s oil exports in the second half of this year “quite high,” he said. But the position of Iranian Supreme Leader Ali Khamenei remains unclear and remains the biggest uncertainty surrounding the talks. “If Washington or Tehran (or both) rush in and there is no progress in the coming weeks, we believe that the chances of reviving the agreement and fully restoring Iranian oil exports this year will be greatly reduced,” Croft wrote. for the oil market? Oil futures fell sharply on Monday, in a move traders attributed in part to expectations that talks could move forward, though analysts said the move, which was also attributed to other factors, was likely overstated. Oil regained some lost ground on Tuesday, with June Brent BRN00 crude, + 1.16%, the global benchmark, rising 57 cents, or 0.9%, to $ 62.71 a barrel on ICE Futures. Europe. May West Texas Intermediate CL.1 Crude, + 1.33% CLK21, + 1.33%, the US benchmark, rose 60 cents, or 1%, to $ 59.25 a barrel on the New York Mercantile Exchange. Iran appears to have boosted oil exports a bit, according to news reports, and China is expected to increase purchases in March. Analysts at Goldman Sachs recently raised their estimate for Iranian production to 2.7 million barrels per day based on what the firm said it had identified as a large increase in exports so far this year. They expect production to remain near that level through the second quarter of next year, followed by a 900,000 barrel per day increase through the end of 2022. They also assume a 20 million barrel discharge of oil from floating storage over the next six months as talks resume (see chart below).

Goldman sachs

Goldman analysts said the talks are not a threat to its bullish view on oil prices, but could affect the “price trajectory.” Given the Biden administration’s desire to re-enter the deal, most analysts expect Iranian crude to return to the market at some point, they said. Meanwhile, the Organization of the Petroleum Exporting Countries and its allies would likely act to adjust production to accommodate the increase. But “changes” in the timing of a deal could create “asymmetric risk” for Goldman’s forecasts of a year-end price of $ 75 a barrel for Brent in 2021 and 2022. Normalization before the end of the year it would lower the forecast by $ 5 a barrel. while the lack of a deal in 2022 could put more than $ 10 a barrel at upside risk, they said.