Funds dump oil as Tehran deal threatens glut

Speculators cut bullish bets on oil to the lowest level since March because an agreement over Iran’s nuclear programme threatens to prolong a global supply glut.

Iran, holder of the fourth-biggest crude reserves, may be able to increase exports as soon as December if it complies with the terms of its nuclear accord with world powers. That would add to record output from Saudi Arabia and Iraq and come at a time when the Opec countries is pumping the most in almost three years.

“Iraqi production’s rising, Saudi Arabia increased production, total Opec production is trending higher,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. The US benchmark grade slipped to $50.89 on July 17, the lowest closing price since April 9. The US, China, Russia, the UK, France, and Germany reached the deal with Iran in Vienna on July 14. Full implementation depends on Iran meeting obligations to curb its nuclear program. Iran has until December 15 to answer 12-year-old questions about its weapons capabilities.

Once inspectors verify compliance, the nation will be allowed to ramp up energy exports, re-enter the global financial system and gain access to as much as $150bn in frozen assets.

The country has urged fellow Opec members to make way for it to pump 4m barrels a day when sanctions are lifted, up from 2.85m in June, according to data compiled by Bloomberg. Iran could boost daily exports by 500,000 barrels within a year of full implementation, Clearview Energy Partners said in a research note.

Saudi Arabia, the world’s biggest oil exporter, pumped 10.564m barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to Opec. Iraq boosted production to 4.388m in June, the highest level in records dating back to 1985, according to Bloomberg data.

Global markets remain “massively oversupplied”, the International Energy Agency (IEA) said on July 10. Demand for Opec’s crude will climb next year by 900,000 barrels a day to average 30.1m, according to the IEA, about 1.2m less than the group estimated it pumped in June.

Futures also declined on concern that unsettled markets in China and Europe may hurt demand. “Anybody who bought oil this week is under water,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Partners, a futures brokerage. “If there is speculative length out there, they are trying to get out now. The market is still over-supplied even without the Iranian deal.”

Bloomberg