Iran on Tuesday reached an agreement on its nuclear programme with six world powers led by the US, a development that could end a nearly four-decade-old standoff with the West. The agreement limits Iran's nuclear capabilities for a decade and puts in place a tighter inspection regime in return for lifting financial and military sanctions.
Indian oil firms, especially upstream players such as ONGC and Oil India, could be in for big gains as Iran is likely to pump more crude oil into an already surplus market, pushing prices even lower.
Intraday benchmark Brent prices fell $1.07 to $56.78 a barrel. Experts said crude may fall $3-4 more as supply increases even as demand growth remains muted.
Oil and gas shares in India reacted positively, with refiners leading the pack. 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 per cent. Indian Oil Corp and Hindustan PetroleumBSE 0.19 % Corp gained over 3 per cent while Bharat Petroleum shares ended up 2 per cent.
"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 of close to $3 per barrel. This, in turn, will lead to underrecovery 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," said Rahul Prithiani, director, CRISIL Research.
India, which used to source over 10 per cent of its crude requirements from Iran with Essar Oil and Mangalore Refinery being the biggest importers, has been reducing shipments from that country in response to sanctions by the West.
India's oil imports from Iran declined in January-June this year by 23 per cent as companies curbed inbound shipments. Indian oil refiners have stepped up purchases from other geographies such as Mexico, Iraq and Venezuela while building inventories as crude prices remain weak due to lower demand. Industry watchers said refiners are now likely to renew shipments from Iran.
An oil ministry official said: "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." The lifting of the ban now puts pressure on Indian refiners to resume payments to Iran for their past buys. They owe about $6.5 billion to Iran for oil imports, which is about 55 per cent of the bill for crude sourced since February 2013, when payments through Turkey's Halkbank were stopped due to sanctions by the West.
Source:economictimes.indiatimes.com
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