Oil prices continued their upward move and traded strongly above the $80 threshold on Monday as traders and analysts expressed concerns about a significant drop in Russian crude exports in the coming weeks that could impact supplies to major consumers such as India and China.
Brent crude futures were trading at a nearly four-month high of $80.98 a barrel, up 1.58% from their previous close, while West Texas Intermediate (WTI) crude futures were up 1.76% at $77.92 a barrel.
Brent and WTI crude futures have risen about 7% since Jan. 8, and have risen sharply since Friday after the Biden administration imposed broader sanctions on Russian oil.
The United States plans to enact a comprehensive set of new sanctions on Russia’s oil industry, including restrictions on two major Russian oil producers and an alleged “shadow fleet” of tankers.
The Treasury and State Departments said last week that Russian oilfield service providers and alleged traders of Russian oil were also among those targeted in the latest round of measures, which aim to restrict Russia’s large and increasingly important source of revenue from its oil and gas sector. Analysts have suggested that the new round of sanctions against Russian oil could be a temporary shock to global oil trade.
“The main impact of the sanctions is on the Russian oil sector. Rystad Energy said in a commentary on Monday that tankers will likely experience most of the impact in the coming weeks, with Russian crude and product exports declining by 1 million to 1.5 million barrels per day. This decline will significantly boost the market for several weeks.
Rystad noted that the sanctions imposed by the outgoing Biden administration included “the most significant package of new sanctions against Russian hydrocarbon exports since the European ban.”
Gasoline prices rise as oil prices and sanctions rise
Gasoline prices have started to rise again, according to AA, in line with the rise in oil prices since December. By Friday, wholesale petrol prices had risen by 3p a litre since Christmas, while diesel was up by 5p, the Motor Group said. Petrol prices averaged 137.2p a litre over the weekend, having held steady at 134p in October, with diesel at 143.7p, down from a low of 138.4p. Freezing temperatures and rising pump prices are a bad start to 2025 for drivers.”
The rally coincided with a rebound in oil prices, driven by fresh US sanctions on Russia recently, which saw benchmark Brent crude rise to $80 a barrel on Monday.
“Any weakness in sterling won’t help because oil and fuel commodities trade in dollars,” he added, after the pound hit a 14-month low against the dollar on Monday. “We will be watching closely to see how much the fuel trade benefits from higher costs. What happened before the winter has not filled drivers with confidence.
However, any correction is likely to be short-lived unless there are major changes in the underlying drivers of tight supply.
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Biden’s Sanctions on Russian Oil and Their Impact on the Market
Imminent Sanctions on Russian Oil
The Biden administration is set to implement tougher sanctions on Russian oil exports before Donald Trump’s inauguration on January 20. These sanctions will target tankers carrying Russian oil at prices above the US and European cap of $60 per barrel. The expected restrictions are expected to disrupt Russian exports to major consumers such as China and India, forcing them to look for alternative sources in Africa, the Middle East and the Americas. This shift could increase shipping costs and boost oil prices.
Additional Supply Concerns
Donald Trump plans to tighten restrictions on Iranian oil exports when he takes office, which will likely lead to further supply disruptions. Additionally, rumors point to a potential decline in Saudi Arabia’s production this month. Compounding these factors, US crude inventories have fallen for seven straight weeks, with a 950,000-barrel decline in the past week alone. This ongoing supply squeeze continues to tighten the market.
The tightening of supply coincides with a modest improvement in global economic conditions. Positive data from China and the Eurozone, coupled with the sustained resilience of the US economy, suggest that oil prices may have moved beyond the recent consolidation phase. For example, WTI has risen above the $66 threshold, and Brent has surpassed the $70 mark – both key levels that OPEC+ has set as acceptable minimum benchmarks.
From a technical perspective, the upside momentum appears overextended. The Relative Strength Index (RSI) has entered overbought territory, a level not seen since April last year when WTI traded at $85 per barrel. This could signal a potential short-term correction; especially as daily candlestick patterns reveal selling pressure at higher price levels.
