Oil prices rose to their highest levels in three months on Friday as traders expected supply disruptions after the United States imposed its toughest sanctions package yet on Russian oil and gas exports. The move by the U.S. government sent shockwaves through global markets, sending crude oil prices up nearly 3%.
The new round of sanctions is the latest salvo by the Biden administration as it looks to severely affect Russia’s oil revenue. The new sanctions target every aspect of Russia’s oil industry-from producers to tankers, and from intermediaries to traders, and ports-as a way to cripple Russia’s entire supply chain of oil production and distribution.
These actions come as part of a broader effort to weaken Russia’s ability to generate revenue from its vital oil and gas sectors.
Brent crude futures closed out trading at $79.76 a barrel. Brent crude futures posted an impressive gain of 3.7%, moving through the barrier to $80 per barrel for the first time since October 7. It seems that Brent is following the global lead where the market prepares for how the sanctions might influence Russia’s export volumes.
West Texas Intermediate (WTI) Crude Prices Surge
U.S. West Texas Intermediate crude futures surged sharply at the same time, adding $2.65, or 3.6%, to end at $76.57 per barrel. Crude benchmarks pushed up more than 4% to their highs as speculations grew with a reportedly leaked, yet never verified, paper circulated in Europe and Asia elaborating on the details of U.S. sanctions.
Industry sources close to Russian oil trade and refining, especially in India and China, have indicated that these sanctions will severely disrupt Russian oil exports to its key buyers, including India and China. This potential disruption is contributing to heightened market concerns about future supply shortages.
Increased Demand And Supply Concerns Drive Oil Prices Up
Rising expectations of increased demand further supported the surge in oil prices. Heating fuel consumption is expected to rise with colder temperatures sweeping across the Northern Hemisphere. Additionally, a report showing a seventh consecutive weekly decline in U.S. crude stockpiles has indicated that demand for oil is remaining strong in the world’s largest consumer market.
On the supply side, Russian seaborne oil exports have fallen to their lowest since August 2023 and reinforced market worries about global oil availability. On the other hand, though these supply disruptions and increased demand have supported the oil prices so far, there are a few factors restraining further gains.
Citing weak demand signals from China, where inflation has nearly dropped to zero levels, and a strong U.S. dollar that makes oil expensive for overseas buyers, has somewhat reined in the upside.
In addition to the increase in crude prices, U.S. ultra-low sulfur diesel futures, a significant component of heating oil, increased by 5.1%, closing at $105.07 per barrel. This is the highest price for diesel since July 2023. The increased prices of diesel and heating oil are likely to add to inflationary forces, especially as winter sets in.
Looking ahead, analysts expect oil prices to remain volatile as the market reacts to both supply and demand dynamics. While cold weather and strong demand in the U.S. may provide support for oil prices, the ongoing strength of the U.S. dollar and weak demand from China could create challenges for sustained growth. Analysts say crude oil will be volatile; it should face support between $73.05–72.50 a barrel and resistance between $74.20–74.90 a barrel.
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