Iran strikes global deal, Indian Oil Companies to benefit ?

Iran on Tuesday reached an agreement on its nuclear programme with the six world powers. A US led group confirmed the development and express its satisfaction on the progress. This development could end Iran’s four-decade-old standoff with the west. The agreement will limit Iran’s nuclear capabilities for a decade. Iran has agreed to conditions that puts in place a tighter inspection regime in return for lifting financial and military sanctions.

With this important development in the global oil market, Indian oil firms, especially the upstream players such as ONGC and Oil India , may benefit handsomely. Iran’s agreement with the west is likely to increase the supply of Oil in global markets which may push prices lower from current levels.

Oil & gas shares in India reacted positively and us expected to trade positive in near term. The S&P BSE Oil and Gas Index ended up 0.6 per cent at 9963.05 while the benchmark Sensex closed down 0.1.

As per Mr. Rahul Prithiani , Director , Crisil, “Iranian production is expected to increase by close to 0.5 million barrels per day in six months which will result in a crude price impact close to $3 per barrel. This in turn, will lead to under recovery declining by Rs. 3,600 crore and upstream company realisations will improve by Rs. 1,200 crore. There will be no material impact on oil marketing companies.” Experts believe Brent crude may drop to about $40 per barrel on overseas supply. A new source of supply means potential cap on oil prices in foreseeable future.

As reported in leading daily an executive at Indian oil corp said, “Whether imports from Iran will rise or fall will depend entirely on commercial terms. We are a minor importer of Iranian crude and will take a view on future trade purely on the basis of its economics." 

Following were the comments from an official at oil ministry: "We will have to see the details of the deal before taking a view. There is no dearth of crude oil in the world. Iran was attractive mainly because of its sops. The sops will now very likely disappear. So we will have to weigh if it makes economic sense to import from Iran." 

Investors and traders can expect to see some volatility in the Oil & gas stocks.