Oil Steady as Global Supply Risks Grow
Oil held near a five-month high as threats to global supplies posed by tougher U.S. sanctions on Russia and potential trade tariffs from the incoming Trump administration threatened global supplies.
Brent was steady near $81 a barrel, after surging more than 5% over the previous two sessions, while WTI neared $79. The U.S. imposed its most aggressive sanctions yet on Russia’s oil industry on Friday, targeting major exporters, insurers and more than 150 tankers. At the same time, 10 European countries are also pushing for tighter curbs.
In Canada, meanwhile, Alberta Premier Danielle Smith warned of possible U.S. tariffs after Donald Trump takes office next week, with no exemption for oil, after meeting with the president-elect in Florida. More than half of U.S. crude imports come from Canada, much of it from Alberta. Crude has had a strong start to the year as the compounding supply risks provided a further boost to a market that has been buoyed by falling U.S. inventories and cold weather that has fueled demand. While the full impact of the latest U.S. sanctions package is far from clear, it could prompt a diversion of global flows as users across Asia, including refiners in India and China, are forced to reach far and wide for replacement barrels. “There is still a lot of uncertainty about how much impact the latest U.S. sanctions will have on Russian oil exports,” said Warren Patterson, head of commodity strategy at ING Groep NV. “While the sanctions have the potential to wipe out the surplus we had hoped for this year, the actual volumes lost are likely to be more limited as players find ways to get around the sanctions.” Some early signs of disruption are already apparent. Among them, a senior Indian bureaucrat told reporters that sanctioned ships would not be allowed to discharge, and tanker rates have jumped as the restrictions threaten to cut off ship supplies. In the physical market, Chinese buyers are snapping up crude supplies from the United Arab Emirates and Oman through tenders.
Widely watched metrics point to a tightening market. Brent’s prompt spread—the difference between its two nearest contracts—has jumped to $1.31 a barrel in backwardation, a bullish pattern. That compares with a spread of 40 cents at the end of last year.
Russian sanctions and winter demand “are fueling the momentum in oil prices and there could be further floor here,” said Charu Chanana, chief investment strategist at Saxo Markets Pte in Singapore, citing expectations that Trump will tighten sanctions on Iran. “We see WTI potentially reaching $85 in the near term, even as rising non-OPEC+ production and slowing demand from China could limit upside from there.”
Source: Bloomberg
