• Iran return expected to be gradual
  • Oil markets see little reaction to Vienna deal
  • No change in Saudi policy anticipated

Oil market analysts have taken a cautious view of Iran’s ability to ramp up oil exports in the wake of the nuclear agreement signed in Vienna on 15 July.

The deal, which will see the removal of sanctions against Iran’s oil industry, will allow Iran to start boosting oil production and exports to pre-sanctions levels.

Iranian officials have said the country could increase production and exports by an additional 500,000 barrels a day (b/d) within a month of sanctions being lifted, and by 1 million b/d within six months.

But few analysts have echoed this. UK bank Barclays predicts Iranian production will increase by 200,000 b/d by the fourth quarter of 2015 – straight after sanctions are lifted – and rise by a further 400,000 b/d by the final quarter of 2016.

“As Iran clears some of its [estimated] 40 million barrels of oil in floating storage, exports will exceed these newly produced volumes by as much as 200,000 b/d,” said the note by Barclays’ commodities research team.

Further forecasts reinforce this cautious outlook. Richard Nephew, former director for Iran at the US National Security Council, estimated additional volumes of 300,000-500,000 b/d could be on the market within six to 12 months of sanctions being lifted.

UK-based consultancy Wood Mackenzie forecasts just 600,000 b/d of new oil output by the end of 2017.

The oil prices reflected the consensus that there will be no significant flood of Iranian crude into the market. While the Brent and West Texas Intermediate (WTI) prices dipped after the Vienna announcement, both indices retraced losses and were trading higher by the end of the day.

Barclays maintained its Brent price outlook at $68 a barrel in 2016, saying it expects the market to adjust through either higher demand or lower non-Opec supply.

“For now, Opec is already producing well above the demand for its crude, and this makes it worse,” said the Barclays research note. “We do not expect the Saudis to do anything markedly different. Rather, they will likely take a wait-and-see approach.”

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