NEW YORK (AP) — Oil prices could be headed lower afterthe preliminary nuclear deal between Iran
and six world powers, eventhough it does not loosen sanctions on Iran’s oil exports.In theshort term, the
deal may make it easier for Iran to sell the oil it isalready allowed to sell under the sanctions, which
would increasesupplies on the world market. And the newfound cooperation between Iranand the West eases
tensions that pushed oil prices higher in recentyears.But the deal, described by both sides as only a first
step,raises the possibility that a more comprehensive agreement wouldeventually allow Iran to restore oil
production to pre-sanctions levels.That could add 1 million barrels per day of oil to world markets —enough
to meet the entire global growth in demand for 2014 projected bythe International Energy Agency."The
initial reaction is going tobe a more stable oil market," says Anthony Cordesman, a Middle East
andenergy expert at the Center for Strategic and International Studies inWashington. "But everything
will depend on if there’s a final agreementand how it is implemented."Iran reached an agreement Sunday
withthe U.S. and five other world powers to freeze its nuclear program forsix months while the two sides
work on a more permanent deal coveringIran’s development of nuclear technology. In exchange, some
sanctionsagainst Iran will be relieved, and it will get access to some frozenoverseas assets, including $4.2
billion in oil revenue.KevinBook, an analyst at ClearView Energy Partners in Washington, predictsthe price
of Brent Crude, an international benchmark used to price oilused by many U.S. refineries, could fall to $90
a barrel by the end ofnext year if talks yield a final agreement. That’s 17 percent belowBrent’s level early
Monday when it fell $2.24 to $108.81 a barrel.Analystscaution, though, that if talks on a final deal fall
apart — or evenappear to be faltering — oil could instead rocket higher. Iran and theWest have been
seemingly close to an agreement on nuclear issues in thepast, only to abandon talks and descend deeper into
acrimony."Even the slightest hint of an unraveling of the Geneva accord could restore a vibrant risk
premium to crude," Book says.Butoil prices appear to be headed lower for now, in part because
theprospect of more Iranian oil is coming at a time when production isrising in the U.S., Canada, and
elsewhere, helping global supply growthoutpace the growth in demand. The average price of Brent crude so
farthis year is 3 percent below last year’s average, and it’s on track forits lowest average price since
2010.Lower prices of Brent crudehave helped reduced U.S. retail gasoline prices this year, which arealso on
track for their lowest annual average since 2010. A furtherreduction in oil prices could bring additional
relief to drivers."Theperception, whether accurate or not, that next year’s surplus could
besupplemented by additional Iranian barrels will be bearish for prices,"says Judith Dwarkin, director
of energy research at ITG InvestmentResearch.Iran produces 2.7 million barrels of oil per day, 3percent of
world demand that averages 91 million barrels per day.Iranwas once the world’s third largest oil exporter,
but since 2012, whenWestern nations expanded economic sanctions against the country toinclude oil, its
exports have dropped 60 percent to less than 1 millionbarrels per day. Limited exports were allowed to
continue to somecountries, especially in Asia, that rely on Iranian crude.Thisweekend’s preliminary deal
does not change those sanctions, which theWhite House says cost Iran up to $5 billion per month. The deal,
theWhite House says, allows "purchases of Iranian oil to remain at theircurrently significantly reduced
levels."But the Geneva deal maymake it easier for Iran to sell the oil allowed under the
sanctions.ClearView’s Book estimates that Iran could increase sales by about285,000 barrels per day over the
next month before reaching the 1million barrel per day limit allowed by the sanctions.Whilemodest, that
could help lower global prices by making up for a sharpdrop in Libyan crude exports in recent months caused
by civil unrest.Thesimple fact that the two sides reached any agreement at all will alsohelp reduce prices.
Oil has been more expensive in recent years in partbecause traders worried that the heightened tensions
between Iran andthe West would lead to a sudden interruption of oil supplies. Iran inthe past has threated
to block or attack oil shipments through theStrait of Hormuz, a narrow passage in the Persian Gulf through
whichone-fifth of the world’s oil passes.Also, traders worried thatthe West would further tighten limits on
Iran’s oil exports. While thoselimits won’t be loosening soon, the threat of even less Iranian oil onthe
world market has all but evaporated — for now.Jonathan Fahey can be reached at http://twitter.com/JonathanFahey .Copyright
2013 The Associated Press. All rightsreserved. This material may not be published, broadcast, rewritten
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