Crude oil prices dipped on Wednesday as the market prepared for a gradual increase of Iranian exports into an already oversupplied market from 2016 after six world powers and Tehran reached a nuclear deal on Tuesday.
Under the nuclear deal reached on Tuesday, sanctions imposed by the United States, the European Union and the United Nations are to be lifted in exchange for curbs on Iran's nuclear programme. While oil prices initially fell on the news, they recovered later as it became apparent the deal would not immediately lead to a flood of new supply.
India's oil minister, Dharmendra Pradhan, said Iran's eventual return to international oil markets would "certainly" lead to lower prices.
Due to its relative proximity to Iran and established business ties, India is tipped to be one of the first and biggest takers of Iranian oil once sanctions are lifted or eased, although Pradhan said the government would first have to study available offers.
Brent crude was down 18 cents from its previous settlement, trading at $58.33 a barrel by 0724 GMT. U.S. futures were down 9 cents at $52.96.
Rise in Iran exports to be gradual
But analysts said that Iran's exports would only gradually increase from 2016.
"New oil will not flow from Iran until 2016 and there will probably be less of it than optimists predict," said Richard Nephew, Program Director for Economic Statecraft, Sanctions and Energy Markets at the U.S. Center on Global Energy Policy.
"I estimate 300,000-500,000 new barrels of oil on the market within 6-12 months after a deal begins to be implemented."
Morgan Stanley said most assessments saw 500,000-700,000 barrels per day (bpd) of new supply by the first half of 2016.
Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC) has some of the world's biggest oil reserves. It exported almost 3 million barrels per day (bpd) of crude at its peak, before Western sanctions over its alleged ambitions to build a nuclear bomb saw shipments collapse to about a million bpd over the last 2-1/2 years.
Growing downside risk
Analysts cautioned that the general outlook for oil markets was for prices to remain low and perhaps fall further.
"We view the 2016 prospects for higher OPEC production including from Iran as a growing downside risk to our oil price forecast," Goldman Sachs said.
Goldman's current oil price forecast is for Brent to average $58 in 2015 and for $62 next year, while it expects US crude to average $52 and $57 this year and in 2016, respectively.
"The oil market could be oversupplied for longer than we previously anticipated, as OPEC members manoeuvre for increased market share and US production remains resilient," Jefferies International said.
"The potential easing of sanctions on Iran's oil industry puts further pressure on a market that has been oversupplied by 2 million barrels per day," it added.
Traders are also keeping an eye on China for cues on the health of the economy. A savage correction shaved about 30 per cent off the country's stock market since last month before support steps by Beijing helped stem the freefall.
China, one of the world's top energy consumers, reported stable economic growth on Wednesday at an annual rate of 7 per cent.
French bank Natixis said there was a risk of oil prices falling more if China's economy slowed further while global oil production stayed close to its near record highs.