Company cars are seen in front of the Grand Hotel Vienna after a meeting of the Joint Comprehensive Action Plan (JCPOA) on the “Iran nuclear deal” in Vienna on May 01, 2021.
Askin Kiyagan | Anadolu Agency | Getty Images
A nuclear deal between the US and Iran could drive energy prices up – even if it means more supply in the oil markets, according to the head of energy research at Goldman Sachs.
While it seems contradictory, a deal that puts Iranian barrels back on the market could actually spike oil prices, said Damien Courvalin, who is also a senior commodities strategist at the bank.
Talks in Vienna are ongoing as Iran and six world powers – the US, China, Russia, France, the UK and Germany – seek to save the groundbreaking 2015 deal. Officials say there has been progress, but it remains unclear when the negotiations could finalize and oil prices fluctuated as a result.
An agreement would lift sanctions against Iran and get Tehran and Washington back to comply with the Joint Comprehensive Plan of Action (JCPOA). The US unilaterally withdrew from the nuclear deal in 2018 and again imposed crippling sanctions against Iran, which dealt a blow to the Islamic Republic’s oil exports.
When that announcement comes in the next few weeks, we believe that this bullish re-rating will indeed begin.
Damien Courvalin
Head of Energy Research, Goldman Sachs
Courvalin explained his reasoning. He pointed out how oil prices rose in April after OPEC + announced it would gradually increase production from May by adding 350,000 barrels a day.
“An increase in production … is announced that exceeds all expectations – including ours. And yet prices are rising and volatility is falling, ”he said.
“Why? Because we have eliminated an uncertainty that has weighed on the market since last year,” he told CNBC’s “Squawk Box Asia” last week.
Investors wondered if OPEC would get into a price war if it tried to increase production, but the oil cartel has shown “a compelling way forward,” Courvalin said.
“The same could be argued for Iran,” he added. Simply knowing will likely “remove some of that uncertainty”.
“If this announcement comes in the next few weeks, we believe that this bullish re-rating will actually begin,” he said at the time.
Opposing views
Other analysts say a deal could lead to lower oil prices, at least in the short term.
Morgan Stanley said in a research note that a surge in Iranian exports is likely to cap Brent crude at $ 70 a barrel and expects the international benchmark to be between $ 65 and $ 70 for the second half of 2021. Dollars is traded per barrel.
Brent crude fell 0.13% to $ 71.22 in Asia on Friday, while US crude futures fell 0.1% to $ 68.75.
“Our view is that the first reaction to a potential deal will be a brief sell-off,” Tamas Varga, an analyst at PVM Oil Associates, told CNBC in an email.
CNBC Pro’s Stock Picks and Investment Trends:
Extra Iranian barrels would be a headwind if a deal comes off, according to Austin Pickle, investment strategy analyst at the Wells Fargo Investment Institute.
But softer crude prices can only be temporary.
“We suspect that accelerated demand and the disciplined supply response from OPEC + will prop up oil prices,” Pickle wrote in a note, referring to OPEC and its allies.
PVM Oil Associates expects Brent prices to hit $ 80 a barrel by the fourth quarter of 2021, Varga said.
He also said it will be some time before Iran exports oil again, and global demand may have improved significantly by the time additional barrels hit the market.
Additional Iranian barrels should only delay the price recovery, but not throw it off track.
Tamas Varga
Analyst, PVM Oil Associates
While the global economic recovery has been uneven – faster in developed than in developing countries – as vaccine rollout accelerates in Asia, oil prices will rise faster, he added.
“Extra Iranian barrels should only delay the price recovery, but not throw it off track,” said Varga.
S&P Global Platts Analytics believes there is scope for Iranian and OPEC + oil supply to grow in the third quarter.
However, towards the end of the year, energy prices could come under pressure as Iranian exports and US oil production rise, said Nareeka Ahir, geopolitical analyst at S&P Global Platts. She said Brent could fall to the mid or low $ 60 in late 2021 through 2022.
Supply can lag behind demand
Goldman Sachs sees a faster spike in Brent crude oil prices and predicts the international benchmark could hit $ 80 by the third quarter of this year.
Courvalin noted that Asian oil demand had been revised downwards on new waves of the virus and this was offset by upside surprises in the US and Europe.
“It really paints a picture where once vaccination rates go up enough, you really see pent-up mobility and a significant surge in oil demand being released,” he said. “That’s … the root of the bullish view.”
He said supply is likely to lag behind demand and there will be “plenty of room” to take in oil from Iran.
“In fact, if you tell me Iran is not coming back, our forecast of $ 80 is way too low compared to the development of the oil market through 2022,” he added.
Concerns about an Iran deal and the pandemic may have “masked a rapidly deteriorating oil market,” Courvalin said.
