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Buy Oil Stocks on the Iranian Nuclear Deal

Don't fret the recent drop in oil prices caused by Iran’s “good” news

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We may be witnessing history across the Atlantic.

midstream oilAfter decades of geopolitical tension in Iran, the situation seems to be getting a bit less tense. Over the weekend, Iran — along with nations in the G6 — signed an agreement to curtail is nuclear ambitions and its enrichment projects. Those controversial programs were thought to be part of a larger nuclear weapons agenda.

To combat those ambitions, the West has brought years of sanctions against Iran. The latest of which hit Tehran right where it hurts: in the “oily” pocketbook. Bans on Iranian crude oil exports have prevented the energy producer from getting its products to key markets in Asia and Europe.

Needless to say, the energy sector didn’t take too kindly to the idea that Iran could be finally shipping its crude — to the tune of 2.5 million barrels of oil per day — out to the market. Both international standard Brent and North American benchmark WTI fell hard on the news. Meanwhile, the Energy Select Sector SPDR (XLE) underperformed its sector ETF peers on the positive news.

However, energy investors shouldn’t get too bearish on Iran’s decision. In fact, they should be buying oil stocks hand-over-fist.

Still Plenty of Uncertainty

The current drop in energy stocks and oil prices based on the Iranian nuclear deal could be one of the best buying opportunities we’ve have in months.

The important thing to remember is that the deal doesn’t actually lift any ban on crude oil exports. It seems that the market didn’t read the entire press report.

Over the next six months, Iran will have to prove itself to the U.N. and G6. Under this probationary period, E.U. crude oil bans will remain in effect and limit Iran to approximately 1 million bpd in crude oil sales. However, analysts at British investment bank Barclays (BCS) estimate that Iran will have trouble ramping up its exports to more than 400,000 barrels as restarting shut-in oil wells will prove nearly impossible.

Sanctions that keep Western oil service firms — like Halliburton (HAL) and Schlumberger (SLB) –- from doing business in Iran remain firmly in place. That’s a huge issue because Iran needs their help in order to get oil flowing and keep it flowing. Like much of the Middle East, Iran is facing the problem of dwindling output from its legacy oil fields and needs some Western-style technology to keep pumping.

In addition, U.S. and E.U. sanctions preventing the sale of refined petroleum products into Iran are also still outstanding. And because it has zero refining infrastructure, Iran needs to imports pretty much all of its diesel and gasoline needs. The irony is that Iran needs these fuels in order to help run the ships and equipment needed to export its bounty.

So realistically, while the deal is great for world peace, it isn’t going to significantly add any real volume to crude oil supplies in the near term.

Article printed from InvestorPlace Media,

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