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Framework of Iranian nuclear deal sends crude oil futures plunging

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Investing.com -- Crude oil futures plunged on Thursday after Iran reached a solution on key parameters of a deal regarding its nuclear program with a group of Western leaders.

As part of the preliminary accord, the U.S. and the European Union agreed to loosen financial and economic sanctions against Iran that have restricted the nation's oil supply over the last four years. The deal has exacerbated concerns among energy traders that a glut of Iranian oil could depress prices in a global market that is already saturated with an oversupply.

On the New York Mercantile Exchange, WTI crude for May delivery plummeted 1.4% to $48.75 a barrel in the span of less than 30 minutes after the Associated Press reported the two sides had reached an agreement on the framework of a deal. At the same time, brent crude for May delivery on the Intercontinental Exchange (ICE) had plunged more than 4% on the day to 54.77 a barrel.

Following President Barack Obama's press conference outside the White House in U.S. afternoon trading, WTI crude futures edged up slightly to close at 49.06 a barrel. Brent crude futures remained relatively unchanged after a joint press conference between Iran and the European Union in Lausanne, Switzerland.

Iran reportedly has 30 million barrels of oil stored in offshore tankers ready for export, according to Reuters. The deal is expected to add stability to oil suppliers in the Persian Gulf, placing downward pressure on WTI crude. Crude in the U.S. is currently being pumped at a rate of approximately nine million barrels per day, its highest level in more than 30 years.

It is believed that the severe financial sanctions against Iran will be lifted on a staggered, step-by-step basis depending on how cooperative it is with inspectors from the International Atomic Energy Agency. Sanctions that have limited the Iranian Banking System will be among the limitations that will be initially removed, NBC News reported.

"The international community has agreed to provide Iran with relief for certain sanctions - our own and international sanctions imposed by the United Nations Security Council," President Obama said. "This relief will be phased, as Iran takes steps to adhere to the deal. If Iran violates the deal, the sanctions could be snapped back into place."

Since the economic sanctions were levied several years ago, crude exports from Iran have been restricted to roughly one million barrel per day. Once the sanctions are lifted, Facts Global Energy, an energy consulting firm, forecasts that the Iranian oil exports could reach a level of 1.7 million barrels per day within 12 months.

Elsewhere, security officials in Yemen said Shiite-backed Houthi rebels captured the presidential palace in Aden, following heavy clashes in the Southern coastal city. Over the last week, the rebels have been under constant attack from Saudi Arabian-led airstrikes.

Yemen is located on the strategically placed Bab el-Mandeb strait, which connects the Red Sea and the Gulf of Aden. The narrow area is one of the world's largest chokepoints of oil.

Energy traders are sensitive to geopolitical risks involving Saudi Arabia, the world's largest oil exporters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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