Oil jumps on expected hit to China and India's Russian supplies

FE Team | Published: January 13, 2025 20:27:03

LONDON, Jan 13 (Reuters): Oil extended gains for a third session on Monday, with Brent crude rising above $80 a barrel to its highest in more than four months, driven by wider US sanctions on Russian oil and the expected effects on exports to top buyers India and China.
Brent crude futures rose $1.20, or 1.5 per cent, to $80.96 a barrel by 1022 GMT after hitting the highest level since Aug. 27 at $81.49.
US West Texas Intermediate crude was up $1.30, or 1.7 per cent, at $77.87 a barrel after touching its highest since Aug. 15 at $78.58.
Brent and WTI have climbed by about 6 per cent since Jan. 8, surging on Friday after the US Treasury imposed wider sanctions on Russian oil. The new sanctions included producers Gazprom Neft and Surgutneftegaz, as well as 183 vessels that have shipped Russian oil, targeting revenue Moscow has used to fund its war with Ukraine.
Russian oil exports will be hurt severely by the new sanctions, pushing China and India to source more crude from the Middle East, Africa and the Americas, which will boost prices and shipping costs, traders and analysts said.
"There are genuine fears in the market about supply disruption. The worst case scenario for Russian oil is looking like it could be the realistic scenario," said PVM analyst Tamas Varga. "But it's unclear what will happen when Donald Trump takes office next Monday."
The sanctions include a wind-down period until March 12, so there may not be major disruptions yet, Varga added.
Goldman Sachs estimated that vessels targeted by the new sanctions transported 1.7 million barrels per day (bpd) of oil in 2024, or 25 per cent of Russia's exports. The bank is increasingly expecting its projection for a Brent range of $70-85 to skew to the upside, its analysts wrote in a note.
Expectations of tighter supplies have also pushed Brent and WTI monthly spreads to their widest backwardation since the third quarter of 2024. Backwardation is a market structure in which prompt prices are higher than those for future months, indicating tight supply.
RBC Capital Markets analysts said the doubling of tankers sanctioned for moving Russian barrels could be a major logistical problem affecting crude flows.
"No one is going to touch those vessels on the sanctions list or take new positions," said Igho Sanomi, founder of oil and gas trader Taleveras Petroleum. "Russian supply is going to be disrupted, but we don't see this having a significant impact because OPEC has spare capacity to fill that supply gap."
The OPEC+ cartel comprising the Organization of the Petroleum Exporting Countries and a group of Russia-led producers, is holding back 5.86 million barrels per day, about 5.7 per cent of global demand.