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Iran deal unlikely to help much at the gas pump

Monday, 25 Nov 2013 | 11:08 AM ET
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The accord struck between Iran and a group of Western allies may do little for the U.S. consumer, with analysts predicting the deal will not do much, if anything at all, to push down retail gasoline prices.

Years of crippling sanctions have slashed Tehran's oil exports, which has in turn crimped the global supply of crude, helping to keep oil prices elevated. On Monday, Brent crude, the international benchmark, swooned by nearly $2 on news of a deal with Iran.

Geopolitical strife tends to boost international crude in a way that eventually trickles down into the cost of gasoline and other distillates, but consumers shouldn't expect the same dynamic in reverse. That's because demand for gasoline is still seen as flat in the uncertain global economic environment, which energy observers say is a key factor behind why gas prices have fallen by nearly 40 cents over the past two months, to about $3.22.

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"The Iran effect on gasoline is very neutral," said Richard Hastings, global macro strategist at Global Hunter Securities. "Prices have drifted back up recently because of refinery outages," he said. "The role of Iran's crude is difficult to determine in an environment of slack demand."

In a research note Sunday night, Goldman Sachs noted that the weekend's six-month agreement is still less than comprehensive. The provisions may provide modest relief for Iran's beleaguered economy, but the large majority of sanctions— including those on Tehran's crude exports—will remain unchanged. According to data from the U.S. Energy Information Administration, Iran's exports have crashed from a 2005 peak above 2.6 million barrels per day, at the time its highest in at least 25 years, to just over 1 million this year.

"Importantly, a statement by the White House on November 24, 2013 specifies that Iranian crude oil sales cannot increase over the next six months and remain limited to approximately 1.0 million barrels a day," the firm said. "We therefore believe that the volume of Iranian crude oil available to the international market will largely remain unchanged over at least the next six months."

Meanwhile, global demand for oil is expected to remain tepid at best. The EIA expects gasoline prices to fluctuate between $3 and $3.50 next year, off their 2011 peak near $4 per gallon. Earlier this year, the EIA sliced its projections for gasoline demand to their lowest level in 12 years, underscoring how consumers are still struggling in a tepid recovery.

Record amounts of crude are being produced by the world's largest economy—helping at the margins to slake the country's voracious demand for energy. Meanwhile, cheaper and more efficient energy sources are also curbing gasoline demand in ways more consequential than potential Iran supply, said Global Hunter's Hastings.

"Fuel efficiency is a major form of energy right now, in a world that is building a lot of solar, wind and natural gas," he said. "The demand outlook is so flat, what does this [deal] really do?"

By CNBC's Javier E. David

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