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 Traders had been fixated on the talks held in Lausanne, Switzerland
for over a week as Iran tried to agree with six world powers on
concessions to its nuclear program to remove U.S.-led sanctions that
have halved its oil exports.
The sanctions against Iran will come off under a "future
comprehensive deal" to be agreed by June 30, after it complies with
nuclear-related provisions, Iranian Foreign Minister Javad Zarif
told a news conference.
"If nothing is going to be signed until June, something could go
wrong between now and then," said Phil Flynn, analyst at Price
Futures Group in Chicago.
Bob McNally, an adviser to former U.S. president George Bush who
heads energy research firm Rapidan Group, noted Iran will need much
patience as the "sanctions are not likely to be lifted until late
2015 or early 2016, though we could see slippage beforehand."
North Sea Brent crude futures, the more widely-used global benchmark
for oil, settled down $2.15, or 3.8 percent, at $54.95 a barrel,
almost $1 above the session low.
U.S. crude futures settled down 95 cents, or 2 percent, at $49.14 a
barrel, after falling nearly $2 earlier.
"I think the market over reacted and is now sitting back a little to
think there is a lot more work to be done," said Dominick
Chirichella, senior partner at the Energy Management Institute in
New York.
FINAL NAIL IN OPEC COFFIN?
Under the preliminary deal, Iran would shut down more than
two-thirds of its centrifuges producing uranium that could be used
to build a bomb, dismantle a reactor that could produce plutonium
and accept intrusive verification. Iran also needs to limit
enrichment of uranium for 10 years.
Sanctions have cut Iran's oil exports to about 1.1 million barrels
per day from 2.5 million bpd in 2012. The OPEC nation is keeping
about 30 million barrels of crude on a fleet of tankers ready to be
shipped when allowed, into a market already flooded with supply.
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John Kilduff, partner at New York energy hedge fund Again Capital,
said since Iran was certain to export more oil at some point, it was
time other members of OPEC led by Saudi Arabia considered cutting
their production.
The selloff in oil, which began in June 2014, accelerated in
November after the Saudis convinced the broader group within OPEC to
stick to its output and defend market share. Brent crashed from 2014
peaks above $115 and U.S. crude tumbled from above $107.
Chirichella agreed with Kilduff. "Come June, the market will again
be rocked by expectations of higher Iranian supply. If the Saudis
stifle another production cut, that could be the final nail in
OPEC's coffin as some of its members break away to do their own
thing to support the market."
(Additional reporting by Christopher Johnson in London and Jacob
Gronholt-Pedersen in Singapore; Editing by Marguerita Choy, Grant
McCool and Chris Reese)
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