International oil prices fall after first round of US-Iran high-level talks concludes; Iran secures sanctions exemptions on crude and petrochemical exports; up to 1.5 million barrels per day could return to market; truce durability remains a wildcard

[Reuters]
[Reuters]

International oil prices fell Monday after the United States and Iran concluded their first high-level talks in Switzerland and agreed to resume Iranian crude exports, shifting market attention away from Middle East supply disruption fears and toward the prospect of Iranian oil returning to global markets.

August Brent crude futures fell 1.48 percent to $79.38 per barrel during afternoon trading, according to Reuters.

Brent had climbed as high as $82.30 per barrel early in the session on uncertainty surrounding the outcome of the negotiations, but reversed course once news of a deal broke.

August West Texas Intermediate also slipped 0.28 percent to $75.64 per barrel.

The driving force behind the price decline was growing expectation that Iran would re-enter the crude market.

Iranian Foreign Minister Abbas Araghchi said after the Switzerland talks concluded that Iran had secured sanctions exemptions covering exports of Iranian crude oil and petrochemical products. He added that the two sides had also agreed to unfreeze some overseas assets and launch reconstruction and development projects.

Analysts said full implementation of the agreement could significantly boost global crude supply.

Sugandha Sachdeva, head of the Indian research firm SS Wealth Street, said up to 1.5 million barrels per day of Iranian crude could return to international markets, adding that the supply expansion would carry considerable weight at a time when demand growth has been slowing.

Markets had until recently viewed the possible reclosure of the Strait of Hormuz as the single biggest risk factor.

Iran had warned the previous day that it might close the strait again, citing Israel's continued airstrikes on Lebanon, and shipping data showed a sharp drop in the number of vessels transiting the waterway.

However, supply disruption concerns eased somewhat after the two sides agreed Monday to establish a framework for safe passage through the Strait of Hormuz.

Still, markets are not yet fully committed to optimism.

The agreement is the first follow-up to an earlier memorandum of understanding, and further negotiations over the next 60 days will need to address nuclear program restrictions, sanctions relief, the return of frozen assets and the Lebanon issue.

ING said in a report that the risk of hostilities resuming during the truce period remains, and that significant political variables still stand between the current deal and a final agreement.

Tensions could flare again during the negotiating process, particularly given the sharp divide between Iran and Israel over Lebanon.

Markets broadly expect oil price direction to be driven more by the pace of negotiations than by supply-and-demand fundamentals for now. Analysts said prices could face additional downward pressure if the Strait of Hormuz remains stably open and Iranian crude actually returns to market — but if talks break down, geopolitical risk premiums could quickly reassert themselves.


sjy@heraldcorp.com