Crude prices fell on Thursday after world powers reached a framework agreement with Iran to curtail the Middle Eastern oil producer's nuclear program, setting the stage for an end to sanctions that have crimped its exports.
The tentative agreement clears the way for talks on a detailed settlement that should ease Western fears that Iran is seeking to build an atomic bomb, in exchange for lifting the economic sanctions, according to media reports.
U.S. benchmark crude settled down 95 cents (U.S.) at $49.14 a barrel, clawing back some ground lost immediately following the announcement of the agreement in Switzerland following days of intense discussions.
"It would be bearish for oil eventually when the sanctions on Iran's oil exports come off, which permits Iran to send more oil into the world market," said Judith Dwarkin, chief energy economist at ITG Investment Research.
Crude prices have fallen by half since last summer as a result of a glut of supplies around the world, resilient output despite deep spending cuts among producing companies and weaker-than-expected demand. Iran's exports have been under sanction since 2012.
"They have three-quarters of a million barrels per day of estimated of unused upstream productive capacity currently, so that's kind of hanging over there," Ms. Dwarkin said. "So depending on if and when the sanctions come off, and the market is still struggling to re-balance, that would just add more water to an already-overflowing bathtub."
Despite weaker crude prices, Canadian energy shares rose after two major oil sands players reported success in efforts to cut costs and deliver reliable production levels.
Suncor Energy Inc. reported that it was about a year ahead of schedule with plans to reduce its operating expenditures by $600-million to $800-million. Its plan to cut its work force by 1,000 people, announced early this year, is almost completed, it said.
Earlier, Canadian Oil Sands Ltd., the largest interest-holder of the Syncrude Canada Ltd. joint venture, said production held relatively steady at 291,000 barrels per day in March, marking three months of steady operations at the northern Alberta project that had suffered frequent outages. It, too, has announced cost cuts to deal with the oil-price collapse.
The S&P/TSX energy index ended up 1.8 per cent at 223.77 points, representing a slight gain since the start of the year.