As Iran nuclear deal nears, market eyes additional 1-1.5m bpd supply

London (Quantum Commodity Intelligence) – Oil futures came under heavy selling pressure this week as talks between Iran and the international community on easing sanctions moved towards a positive conclusion, raising the prospect of a sharp increase on Iranian exports.

Brent futures, having reached a high of more than $70/b on Tuesday slumped to a low of $64.94b on Thursday, or around 7%, before a small rebound late in the session.

Iran has been quick to express optimism over a constructive outcome, but European diplomats have cautioned there are no guarantees of success.

Likewise, US officials have said the discussions so far have laid out a potential roadmap, rather than arrived at any outcome.

However, with the current deal set to expire this month, the market is largely buying into a deal being worked out.

The fifth round of talks are set to take place in Vienna next week.

Return of Iranian crude

Global oil inventories have been trending lower this year and toward the 5-year average, so any influx of Iranian crude into the market could tilt the delicate balance and perhaps require a rethink from the OPEC+ producer group.

If a deal is reached next week, all eyes will be on the speed of Iran's export increase in the second half of the year.

Leading energy consultancy FGE said: "If a deal is reached in May, an additional 1-1.5 million barrels of Iranian oil exports would appear in 2H 2021, of which 600-900,000 million bpd would be crude, with the balance approximately equally divided between condensate and products."

"On this basis, total Iranian oil exports in 2H 2021 would range between 2.6-3.2 million bpd," added FGE.

Political risk consultancy Eurasia Group said in a note last month that Iran would aim to increase exports by 700,000 barrels per day within months of the US lifting sanctions, adding that a return to pre-sanction highs of 3.8 million bpd would likely take an additional six to nine months.