After a 12-year showdown between Iran and the West, a historic and comprehensive nuclear deal has been reached. What may very well usher in a new era of relations between Iran and its western counterparts, will likely have a massive impact on the energy market. The deal involves Iran accepting curbs to its nuclear program in return for relief from sanctions.
While more details of the deal are still emerging after its announcement on Tuesday, July 14th , the conventional arms embargo and restrictions on ballistic missile technology will remain for several years. There will also “snap-backs” to sanctions if Iran should violate any of the deal’s clauses. However, the “joint comprehensive plan of action,” will likely encounter aggressive resistance from its opponents in the United States, Iran, and Israel.
In the markets, oil extended its decline as a result of the deals announcement. Iran was, “once OPEC’s second biggest producer.” In an energy market that is already oversupplied, Iran’s crude shipments could just continue the trend. West Texas Intermediate dropped by roughly 2.5 percent. The new agreement will enable Iran to “restore about 500,000 barrels a day by mid-2016 and an additional 500,000 a day by the end of next year, according to Commerzbank AG.” Eugene Weinberg, the head of commodities research at Commerzbank in Frankfurt told reporters that, “News about the imminent deal has triggered a surge of expectations and fears that Iran will turn out to be a further supply source for an oversupplied market. But many unknowns remain, making a price slump on expectations of a swift comeback in Iranian experts overdone.” WTI fell to $50.88 a barrel, down by $1.32 on the New York Mercentile Exchange. Brent, meanwhile, fell by 2.5% to $56.43 a barrel.
There is still time for investors to plan for an increasingly oversupplied market. The restrictions currently limiting Iran’s exports will remain active until the United Nations officers can report on the country’s compliance with the new deal. Diplomats suggest that the compliance reports will emerge in December. Oil prices have already fallen by 45% in the last year, thanks to increased U.S. production and Saudi Arabia’s increased output. Additionally, OPEC’s members have begun discussing possible plans to collectively reduce output in anticipation of Iran’s return—effectively balancing the market.
As the energy market continues its balancing act, U.S. investors should seriously consider meeting with a financial advisor to examine their investments. Careful and deliberate financing strategies can help diminish the risk many investors will be exposed to throughout the next few months. Our team at Apex implement customized strategies for portfolios that are specifically designed to build your wealth and reduce risk factors, like the ones emerging in the energy market. Contact us to get started on protecting and cultivating your wealth today.