Oil Prices Rise After US Sanctions on Russia
Oil prices continued to climb to their highest in more than four months as a new wave of US sanctions on Russia’s energy industry threatened to curb supplies in an already tight global market.
Global benchmark Brent rose above $81 a barrel, after jumping nearly 4% in the previous session. West Texas Intermediate neared $78. The US imposed its most aggressive and ambitious sanctions yet on Russia’s oil industry on Friday, targeting two major exporters, an insurer and more than 150 tankers.
The sweeping move, less than two weeks before US President-elect Donald Trump takes office, puts the spotlight on key markets in India and China, with refiners there potentially forced to seek alternative supplies. India emerged as a major importer of Russian crude after Moscow’s invasion of Ukraine in 2022, and China is the world’s biggest oil importer. Crude has risen sharply in recent weeks, with gains driven by colder weather, falling US inventories and speculation that Trump officials could tighten sanctions on flows from Iran in the coming months. The Biden administration’s expansive sanctions package that is set to expire threatens to further destabilize markets, complicating policy for the OPEC+ alliance, which plans to begin easing production curbs later this year after a series of delays.
The surge in oil prices could also present a new challenge for central bankers, including the Federal Reserve, if it leads to higher inflation. Investors have scaled back their expectations for the pace of interest-rate cuts from the Fed this year, with the U.S. economy proving strong and price pressures lingering. Read More: Why Biden’s Farewell to Russia Oil Trade Sanctions Are a Big Deal
Citigroup Inc. said up to 30% of Russia’s so-called shadow tanker fleet could be affected, threatening as much as 800,000 barrels a day, though the effective loss may be less than half that. Goldman Sachs Group Inc. said it was keeping its expectations for Russian supply unchanged because crude could be priced cheaper to incentivize buying.
The global oil balance should “call for stable oil prices, not surging as non-OPEC and non-Russian production is expected to comfortably keep up with demand,” said Vishnu Varathan, chief economist and strategist at Mizuho Bank Ltd. “Russian oil could seep into global supply despite sanctions — a move that has been repeated many times.”
With price volatility rising, parts of the so-called paper market have sounded warning signals. Oil options have rallied, with implied volatility measures rising as the bias toward call options increased at Friday’s close. Time frames have also jumped. There have been signs that Russian supply has been squeezed in recent weeks, with the country’s seaborne crude exports estimated to have fallen to their lowest since August 2023. Meanwhile, in Asia, some refiners in India and China have stepped up purchases from the Middle East and the Atlantic Basin amid concerns that further curbs on imports from Russia and Iran could hamper access to supplies.
Source: Bloomberg
