Oil Prices Remain Elevated as Sanction Impact Sinks In
Despite retreating slightly on Tuesday morning, crude oil prices retained most of their recent gains as the impact of the latest round of U.S. sanctions against the Russian energy industry is felt.
According to analysts, the sanction package could reduce the supply of Russian oil globally by between 700,000 and 800,000 barrels daily—a volume sufficient to keep the benchmarks higher.
At the time of writing, Brent crude was trading at $80.34 per barrel, with Wet Texas Intermediate at $78.24 per barrel, slightly down from Monday’s close but higher than both have been for four months.
“Headlines surrounding Russia oil sanctions have been the dominant driver for oil prices over the past week, and combined with resilient U.S. economic data, the tighter supply-demand dynamics have been seeing some momentum,” IG analyst Yeap Jun Rong told Reuters. He suggested some profit-taking is in order, which could reverse the rally in the coming days.
ING commodity analysts Warren Patterson and Ewa Manthey noted in an update that the latest round of U.S. sanctions could remove a quarter of the tankers currently carrying Russian oil abroad. “Losing this volume would wipe out the surplus that we expect for the global oil market this year,” they wrote.
“However, actual volumes lost will likely be smaller. Some buyers may choose to ignore these sanctions, and Russia may also rely more heavily on those tankers in the shadow fleet that are not sanctioned to continue the trade,” the analysts added in their note.
Some analysts have said that expectations for lukewarm demand in the world’s biggest importer of crude oil, China, may blunt the effect of the sanctions. China’s 2024 oil imports were down on the year for the first time in 20 years, excluding the pandemic period, and this has suggested the demand trend in the Asian powerhouse would remain consistently downward. Others, however, are pointing to Beijing’s efforts to speed up economic growth as a reason to expect a rebound in oil demand growth.