Oil prices surged on Monday, continuing the momentum from last week’s rally as markets reacted to the looming potential for supply disruptions following the stringent sanctions imposed by the United States on Russian oil exports.
At 20:35 ET (01:35 GMT), Brent oil futures surged by 1.8 percent, reaching $81.22 a barrel, while crude oil WTI Futures expiring in March increased by 1.7 percent, hitting $77.06 a barrel. On Friday, oil prices had already experienced a surge of nearly 3 percent, marking their highest levels in three months.
U.S. sanctions on Russian oil boost prices
The Biden administration unveiled its most comprehensive sanctions package to date on Friday, aimed at diminishing Russia’s oil and gas revenues, which are believed to fund its ongoing conflict in Ukraine. The latest measures from the U.S. Treasury specifically target major Russian oil producers, including Gazprom Neft and Surgutneftegas PJSC, along with 183 vessels involved in the transportation of Russian oil.
These developments are expected to lead to significant disruptions in Russian oil exports, forcing major importers like China and India to seek alternative suppliers in regions such as the Middle East, Africa, and the Americas. This shift is likely to elevate global oil prices and raise shipping costs. Analysts believe that the sanctions will have a considerable impact on Russian oil exports, compelling Chinese independent refiners to scale back their refining output.
The upward trend in oil prices reflects growing concerns over tightening supply and the possibility of increased demand from alternative sources. Additionally, the sanctions could lead Russia to price its crude below $60 a barrel to stay competitive, further affecting market dynamics.
JP Morgan analysts noted in a recent report that the newly implemented measures are expected to provide the Trump administration with greater leverage in upcoming negotiations with Russia, as it considers the timing and conditions for lifting the sanctions imposed by Biden.
Demand upbeat as cold weather sweeps across U.S., Europe
Oil prices surge further due to expectations of increased demand as a cold snap sweeps across key energy markets in the United States and Europe. The frigid weather has intensified heating requirements, particularly in areas reliant on natural gas and fuel oil for home and industrial heating.
The Energy Information Administration (EIA) reported a significant drawdown in distillate inventories last week, underscoring the surge in consumption amid the ongoing cold spell. Industry participants are closely monitoring updates from major producers, including OPEC+, regarding potential supply adjustments to stabilize markets during this winter surge.
Oil prices experienced another uptick on Friday, recovering a considerable portion of the losses incurred earlier in the week, as the cold weather across the U.S. and Europe heightened expectations for increased demand for heating fuels. Traders are also watching for any further indications of stimulus measures from China, following disappointing inflation figures from the country for December. It is expected that Beijing will ramp up fiscal spending in 2025 to rejuvenate the Chinese economy, which has been facing a prolonged downturn.
As of 20:21 ET (01:21 GMT), Brent oil futures set to expire in March rose by 0.4 percent to $77.22 per barrel, while West Texas Intermediate (WTI) crude futures also increased by 0.4 percent, reaching $75.53 per barrel.
Cold weather sweeps across the U.S. and Europe
A persistent polar vortex has brought cold weather to multiple regions in the U.S. and Europe, with snowstorms impacting the central U.S. This climatic shift has led to increased speculation that demand for heating fuels will rise, subsequently driving up crude oil demand. However, the colder weather is also expected to disrupt travel throughout the northern hemisphere. Recent statistics indicate a series of substantial increases in U.S. oil product inventories, suggesting that demand from the world’s largest fuel consumer remains weak.
Moreover, markets are attentive to signs of economic stimulus in China, especially as recent inflation data show limited improvements in the nation’s economy. The upcoming Lunar New Year holiday in February is also projected to boost travel demand within the country.
Strong dollar limits oil price gains
Despite the surge in oil prices, gains have been moderated by the strength of the U.S. dollar, which has kept both Brent and WTI futures on a subdued weekly performance. The dollar has surged sharply this week, nearing a two-year peak, as hawkish signals from the U.S. Federal Reserve have prompted traders to brace for a slower pace of interest rate reductions in 2025. The market’s focus is now shifting to the nonfarm payrolls data for December, anticipated to be released later on Friday, for further insights on interest rates.
Federal Reserve policymakers are expressing caution regarding protectionist and expansionary policies expected under President-elect Donald Trump, which could have long-term inflationary implications. A robust dollar typically exerts downward pressure on crude demand, making oil pricier for international buyers.
On Thursday, oil prices fell as investors reacted to data showing an unexpected increase in U.S. product inventories, coupled with disappointing economic indicators from China, the top global oil importer. Crude prices faced additional challenges from a strengthening dollar, which reflected the Federal Reserve’s hawkish stance and fueled speculation about a notably slower pace of interest rate cuts in 2025. March Brent crude futures decreased by 0.5 percent, settling at $75.79 per barrel, while WTI crude futures also fell by 0.5 percent, reaching $72.30 per barrel by 20:49 ET (01:49 GMT).
