Oil held close to a five-month high on threats to global supply caused by tough US sanctions against Russia and potential trade tariffs from the incoming Trump administration.
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(Bloomberg) – Oil held near a five-month high due to threats to global supply caused by tougher US sanctions against Russia and potential trade tariffs from the incoming Trump administration.
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Brent is standing near $81 a barrel, after rising more than 5% in the past two sessions, while WTI is near $79. The United States imposed its worst sanctions yet on Russia’s oil industry on Friday, targeting top traders, insurance companies and more than 150 tankers. At the same time, 10 European countries are also seeking stricter measures.
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In Canada, on the other hand, Alberta Premier Danielle Smith warned of possible tariffs in the US if Donald Trump takes office next week, without exemption from oil, after meeting with the president-elect in Florida. More than half of US crude oil comes from Canada, most of it from Alberta.
Crude has seen a strong start to the year as rising supply risks add further pressure to a market already dampened by falling US stocks and cooling demand for air. While the full impact of the latest US sanctions package remains to be seen, it could further restructure global flows as users across Asia, including refiners in India and China, are forced to reach further afield for replacement barrels.
“There is still a lot of uncertainty about how much of an impact the latest US sanctions will have on Russian oil exports,” said Warren Patterson, head of commodity strategy at ING Groep NV. “While they have the potential to eliminate the surplus we expect this year, the actual amount lost will be limited as players find ways to circumvent these sanctions.”
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Some early signs of disruption are already evident. Among them, a senior Indian official told reporters that sanctioned ships would not be allowed to leave, and tanker prices have fallen as the roads threaten to cut off shipping. In the virtual market, Chinese buyers are snapping up crude from the United Arab Emirates and Oman in a tender.
Widely tracked metrics point to a rapidly strengthening market. Brent’s forward spread – the difference between its two nearest contracts – rose to $1.31 a barrel in a reversal, a bullish pattern. That compares to a gap of 40 cents at the end of last year.
Russian sanctions and winter demand “are fueling pressure on oil prices and there may be another runway here,” said Charu Chanana, chief investment strategist at Saxo Markets Pte in Singapore, citing expectations that Trump will tighten sanctions against Iran. “We expect WTI to reach $85 in the near term, as rising non-OPEC+ production and declining demand from China could moderate there.”
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