Iran's oil comeback may come later but will still add to glut

Morgan Stanley says most assessments saw 500,000 to 700,000 bpd of new supply by the first half of 2016

A day after an Iran nuclear deal was finally reached oil prices edge higher as investors recognised it would take time for Tehran to raise output, but the eventual increase in its exports will add fuel to a market already plentifully supplied.

Under the agreement, sanctions imposed by the United States, the European Union and the United Nations are to be lifted in exchange for curbs on Iran's nuclear programme.

"New oil will not flow from Iran until 2016 and there will probably be less of it than optimists predict," said Richard Nephew, Program Director for Economic Statecraft, Sanctions and Energy Markets at the US Center on Global Energy Policy.

"I estimate 300,000-500,000 new barrels of oil on the market within 6-12 months after a deal begins to be implemented," he said.

Morgan Stanley said most assessments saw 500,000 to 700,000 barrels per day (bpd) of new supply by the first half of 2016.

Front-month Brent crude prices were trading at $58.72 per barrel at 0353 GMT, up 21 cents from their last settlement. US crude was up 28 cents at $53.32.

Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), exported almost 3 million bpd of crude at its peak, before sanctions over its alleged ambitions to build a nuclear bomb saw shipments collapse to about a million bpd over the last 2-1/2 years.

ADDING TO A GLUT, FOR NOW

Beyond the realisation that it will take time for Iranian exports to return to pre-sanctions levels, the prospect of more supply coming into the market just as China's economy grows at its slowest pace since the 2008-2009 crisis means oil prices are likely to remain low in the foreseeable future. Even without a jump in production from Iran there are already 2.5 million bpd of available crude that consumers don't need.

Oil prices have halved over the past year as established producers like OPEC and Russia pump near record levels at the same time that American shale drillers have turned the United States into the world's top oil producer.

In China, the world's biggest energy consumer and number two economy, growth is stalling and there are signs that its fuel thirst will also start to ebb. Other parts of Asia are showing signs of economic weakness as well.

China halved its 2015 forecast for vehicle sales growth to a meagre 3% last week as a major slump in the country's stock market depressed sales to consumers concerned about economic prospects.

"Given the current macroeconomic environment and unbalanced fundamentals we have revised our central oil prices down once again," investment bank Natixis said.

"For Brent we expect 2015Q3 and 2015Q4 to average $60/barrel and $59/barrel, respectively, and 2016Q1 to average $57/barrel," the bank said, adding that US crude would trade at a discount of $4-6 per barrel to Brent.

Natixis also said Brent would average $59.20 a barrel in 2015 and $62.30 a barrel in 2016, and that there was a risk of even lower prices if China's economy slowed further while global oil production stayed close to its near-record highs.

It is only further in the future, analysts say, that Iran's oil will help prevent a shortage rather than add to a glut.

"In long-term, the Iranian oil will actually be needed to keep the market balanced, especially as demand will generally rise for some time to come," said Richard Gorry, managing director of JBC Energy Asia.