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Brent eyes $105 as Iran deal eases supply risks

Benchmark Brent crude prices may target $105 a barrel this week after Iran and major western powers struck an initial agreement on Sunday aimed at limiting Tehran's nuclear program in return for sanctions relief, CNBC's latest market survey of traders, analysts and strategists showed.

Although many believe Monday's initial Brent's drop of more than $2 a barrel may extend further, lingering supply risks in Iraq, Libya and Nigeria will prevent prices falling too steeply. Moreover, Sunday's deal doesn't guarantee the complete dismantling of oil sanctions and the immediate return of Iranian crude.

(Read more: Has the 'Mideast premium' been removed from oil?)

The Iran agreement will cause only "modest" price weakness taking Brent crude to $105 a barrel in the near-term and possibly to as low as $100, said UBS' Global Commodities Analyst Daniel Morgan. "The key risks we see are now unrests in both Iraq and Libya which could see prices better supported," Morgan added.

Prior to the Iran agreement, oil markets were already positioned negatively for the week ahead. More than half of the 25 respondents to CNBC's weekly oil market sentiment survey (14 or 56 percent) said prices would decline this week, led by a favorable U.S. supply outlook.

However, oil bulls represented a sizeable minority in this week's poll (11 out 25, or 44 percent), reflecting expectations of improvements in the U.S. economic data releases, which ought to translate into stronger consumer demand for oil.

(Read more: Why a nuclear deal would mean oil price falls)

Though the Iran deal sent oil prices immediately lower in the Asian trading session on Monday, market watchers said the move would be limited as the agreement didn't necessarily herald the imminent return of Iran's crude exports, not at least for the six-month duration of the interim deal and possibly even longer.

"I've seen nothing which suggests that the embargo on crude exports is about to be eased," said Nomura's chief political analyst Alastair Newton. "In terms of supply and demand this looks to be neutral - and should not therefore weigh heavily on upcoming OPEC deliberations."

(Read more: Iran oil, energy sanctions still in force: US)

Still, many believe the agreement will help cool political temperatures in the region, reducing the risk of supply disruptions. "The risk premium associated with fears of military confrontation decreases," said Robin Mills, Head of Consulting at Manaar Energy Consulting & Project Management in Dubai.

Furthermore, though there is no immediate impact on oil supply, Mills said that the Iran deal means that the imposition of further cuts in Iranian exports "will be (at least) delayed" while the "perceived likelihood of a final deal and resumption of 'normal' Iranian exports over the next six plus months' increases."

By CNBC's Sri Jegarajah. Follow him on Twitter @cnbcSri

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