Oil futures decline on groundbreaking Iran accord, U.S. data in focus

Both West Texas Intermediate and Brent benchmarks fell on Monday after Iranian diplomats and their counterparts from the five permanent members of the U.N. Security Council and Germany reached a groundbreaking breakthrough in a decade-long standoff on Irans nuclear ambitions, partially lifting sanctions that battered the nations economy. Market players also awaited the release of key housing data from the U.S. later in the week, coupled with expectations for an improving consumer sentiment.

On the New York Mercantile Exchange, WTI crude for delivery in January traded at $93.55 per barrel at 8:35 GMT, down 1.37% on the day. Prices shifted in a days range between $94.16 and $93.30 per barrel. The U.S. benchmark retreated on Friday but settled the week 1.2% higher, ending the longest weekly losing streak since 1998.

Meanwhile on the ICE, Brent futures for settlement in January fell by 1.98% to $108.85 per barrel by 8:34 GMT, the biggest intra-day decline since November 1. Prices held in range between days high of $108.89 and session low at $108.06 a barrel. The European benchmark rose by 0.4% on Friday and closed the week 2.1% higher.

Oil prices slid after Iranian envoys and their colleagues from six world powers struck an agreement on Sunday on curbing the Islamic republics nuclear program in exchange for a six-month relief in sanctions that curtailed its trade in oil, precious metals and auto parts.

The temporary deal offers the Persian Gulf nation about $7 billion in relief from sanctions but leaves banking and financial measures standing. The accord grants Iran access to $4.2 billion in oil revenue frozen in foreign banks but the current limitations to the countrys outbound shipments remain unchanged at around 1 million barrels per day. However, the European Union will remove a ban on insurance for tankers carrying Iranian oil, easing the trade between Iran and its six remaining customers, but exports to members of the single currency bloc remained prohibited.

According to Olivier Jakob, managing director of consultant Petromatrix GmbH, the interim agreement will raise Irans exports by about 300 000 barrels a day from a month earlier, pressuring down Brent prices.

The International Energy Agency (IEA) reported on November 14 that the Persian Gulf nation shipped 715 000 barrels of oil per day in October, down from 1.26 million bpd in September. However, exports during the first nine months of the year averaged 1.1 million bpd, the agency said.

The deal will also provide $400 million in tuition payments to schools for Iranian students who study abroad and give access to civilian aircraft parts.

In exchange for the partial lift of sanctions, Iran must improve its cooperation with United Nations monitors by granting nuclear inspectors access to its facilities, eliminate its inventories of uranium enriched to 20% and refrain from bringing online a heavy water reactor at Arak, which will provide the country with a second path to nuclear weapons by producing plutonium.

Ric Spooner, a chief market analyst at CMC Markets in Sydney, commented for Bloomberg: “There’s still a long way to go, but with each of these steps we should see some sort of response to the risk premium. The bigger thing for the oil market in terms of the impact on prices is the longer view that this represents a tangible step toward a more final solution that might ultimately see the sanctions lifted altogether.”

Market players however remained wary as the accord was set as temporary and reversible with Israel and Saudi Arabia opposing to it, while some U.S. lawmakers called for close monitoring. Eric Cantor, the second-ranking Republican in the U.S. House of Representatives, said the U.S must remain vigilant and respond immediately and severely to any cheating or wrongdoing by Iran.

“What was achieved last night in Geneva is not historic; it is a historic mistake,” Benjamin Netanyahu, Israels Prime Minister said. “Israel is not bound by this agreement.”

U.S. data

Meanwhile, investors will also be keeping a close watch on this weeks upcoming key U.S. economic data to gauge oils demand prospects in the worlds top consumer and also assess whether the Federal Reserve might scale back its monthly bond purchases earlier than expected.

On Monday, the National Association of Realtors is expected to report that U.S. Pending Home Sales may have risen by 2.0% in October after declining by 5.6% in the previous month.

Data released on Tuesday may show that the number of building permits issued in September and October also advanced, followed by two consecutive gains in housing starts in the respective months. Housing prices are projected to have jumped in September with the S&P/Case-Shiller Composite-20 Home Price Index surging by 12.97% on annual basis, up from 12.82% a month earlier. Meanwhile, the Conference Board will likely report that consumer confidence rose to 72.1 in November following a steep drop to 71.2 in October.

On Wednesday, data by the Labor Department is expected to show that the number of people who filed for initial unemployment benefits rose to 330 000 in the week ended November 23, while durable goods orders probably fell by 1.7% in October. Business activity in Chicago likely slowed in November but remained firmly in the expansion zone, while the Thomson Reuters/University of Michigan Consumer Sentiment Index is projected to confirm the Conference Boards improvement prediction, marking a surge to 73.1 from Octobers 72.0.