Brent slips towards $106, Iran deal eases supply disruption fears

Mon Jan 20, 2014 11:35pm EST

Related Topics

* West, Iran activate landmark nuclear deal, lower chance of conflict

* U.S. follows through on promise, begins Iran sanctions relief

* South Sudan says retakes oil state capital Malakal; rebels deny

* Brent oil neutral in $105.81-$106.80 range -technicals

By Manash Goswami

SINGAPORE, Jan 21 (Reuters) - Brent futures eased towards $106 a barrel on Tuesday as world powers and Iran took a step forward in ending a decade-long dispute over Tehran's nuclear programme, but worries of prolonged outages at other exporters supported prices.

While chances of a potential conflict diminished after Iran halted its most sensitive nuclear operations under a preliminary deal, prospects of the OPEC member pumping more supplies still remain far away. That kept investors focused on immediate supply worries stemming from unrest in Iraq and Africa.

Brent crude fell 4 cents to $106.31 a barrel by 0340 GMT, after dropping to a low of $105.81 in the previous session. U.S. oil futures slipped 48 cents to $93.89. Floor trading was shut, and there will be no settlement on the New York Mercantile Exchange due to the Martin Luther King Jr. Day U.S. holiday.

"Short-term supply related issues will continue to prop up oil prices," said Victor Shum, vice-president of energy consultancy IHS Energy Insight. "The Iran situation appears to be making progress and that is some of the geopolitical tension off, but lifting oil sanctions will be the last to happen."

The United States followed through on promised sanctions relief as part of a nuclear agreement that began taking effect on Monday, in exchange for steps that Tehran had taken.

Since Iran had fulfilled its initial nuclear commitments under the deal, the United States will allow the six current customers of Iranian oil to maintain their purchases at current reduced levels for the six-month duration of an interim nuclear deal between Iran and world powers.

A U.S. official said Iran was currently exporting about 60 percent less oil than it was two years ago and would be held to those reduced levels.

STEMMING LOSSES

Yet further declines in oil were capped by worries of prolonged disruptions from South Sudan and OPEC member Libya.

South Sudan's president said his soldiers had seized the regional capital Malakal back from rebels, a report dismissed by insurgents battling the government.

Libya plans to remove protesters who have seized eastern ports vital for lucrative oil exports within the next few days, Prime Minister Ali Zeidan said on Sunday.

Since the summer, a group of heavily-armed demonstrators has occupied three eastern oil ports which together accounted for 600,000 barrels per day of exports, to force the Tripoli government to give it political autonomy.

"While Libya seems to be making progress in raising exports, there are concerns out there of protests returning and hurting oil output," said Shum. "You have South Sudan in conflict and growing unrest in Iraq.

The March Brent contract looks neutral, as it is moving sideways in a rising wedge, while U.S. oil is expected to test a support of $93.48 per barrel, with a good chance of breaking below it and falling further to $92.65, according to Reuters technical analyst Wang Tao. (Editing by Muralikumar Anantharaman)

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