Iran nuclear deal likely to pull down oil prices long term

After signing a deal to curb its nuclear ambitionsin exchange for the lifting of economic sanctions,common sense suggests oil-rich Iran will flood the marketwith product, bringing the price of oil down. But analysts say it will take time for Iran to get that oil to market, and any major impact on oil prices is months away at least.

The price of a barrel of West Texas Intermediatecrude oilfell after the deal was announced but quickly jumped back into positive territory on Tuesday. The price of WTI closed at$53.04US, up 84 cents on the day.

• Read more of CBC's coverage on the Iran nuclear deal

Analysts interviewed by CBC News for this story say a deal that will see more Iranian oil come online won't necessarily lead to lower prices in the short term.

"The agreement is not synonymous with the immediate opening [of] the country's oil floodgates," wrote HarryTchilingurian, head of commodity markets at BNPParibasin a report. "We are not out of the woods just yet when it comes to the lifting of sanctions on Iran's oil sector and exports."

The keyhurdle for increased Iranian oil exports is in the U.S., where Congress must ratify the deal in the next 60 days. The accord is strongly opposed by key members of the Republican party, but President Barack Obama has already vowed to veto any legislation that would block the deal.

Before economic sanctions on Iran are lifted, the International Atomic Energy Agency also has to verify that Iran is holding up its end of the deal. That report is expected in mid-December, according tothe IEAE's roadmap,meaning economic sanctions likely won't be lifted until the end of the year, at the earliest.

How much oil does Iran have?

As of June, Iran producedabout 2.8 million barrels of crude oil per day and exported 1.1 million barrels per day, about half of what it exported before the last round of economic sanctions in 2012, according to BNP Paribas.Iran is estimated to hold 30 million barrels of crudeoil and oil condensate in offshore storage tankers, saidBNP Paribas, but would likely sell that oil off over a period of two to three months if sanctions are lifted.

If all sanctions end in 2016, no one knows exactly how much more crude oil would enter the market.A plurality ofoilmarket analysts surveyed byBloombergIntelligence in May believed that 500 to 749 thousand barrels per day could be added to global oil supply. The International Energy Agency expects world oil demand to be 94.4 million barrels per day in the first quarter of 2016.

After Iran sells off its oil reserves, the country faces another challenge.

"In order to get to their potential orback to their pre-sanctions output level, a lot of investment is needed," saidDinaIgnjatovic, an economist with TD Bank.

Much of that investment would have to come from outside Iran.A number of major global oil companies left the country in the face of economic sanctions, but many have expressed interest in returning to Iran should sanctions be lifted.

European and Asian oil companies are likely to return to Iran first, saidJamie Webster, senior director atIHS Energy Insight, but U.S. firms will likely take longer due to U.S. economic sanctions.

What does deal mean for Canada?

The deal with Iran could ultimately be bad news for theCanadian oil industry.

"Anyway you look at it, this deal is bearish for oil prices in the near term," saidJudithDwarkin, chief energy economist with ITG Investment Research. "There's just no way you can put lipstick on that pig."

In the long term, the deal "means that prices will not recover as fast as some may have hoped in 2016," wrote Martin King of FirstEnergy Capital in an email to CBC News.

The Canadian energy industry"will just deal with the low prices as they always have done: by containing costs, improving efficiency, and attempt to expand markets where possible," wrote King.

Alberta Premier Rachel Notley acknowledged that rejuvenated Iranian oil exports could have"a bit of a suppressing effect on oil prices for a period of time."

"Like many Albertans, we talk about oil prices much like we talk about weather. And in both cases, we're used to change," said Notleyin a teleconference call from Quebec City.