By Scott DiSavino
NEW YORK (Reuters) – Oil prices climbed approximately 2% to a four-month high on Monday due to expectations that broader U.S. sanctions on Russian oil would force buyers in India and China to seek alternative suppliers. Brent futures rose $1.25, or 1.6%, to settle at $81.01 per barrel, while U.S. West Texas Intermediate (WTI) crude rose $2.25, or 2.9%, to settle at $78.82. This action placed Brent on track for its highest close since August 26 and WTI on track for its highest close since August 12, keeping both benchmarks in technically overbought territory for a second consecutive day.
Additionally, with front-month Brent and WTI prices rising more than 6% over the past three trading sessions, the time spreads—the difference between front-month contracts and later-dated futures—soared to their highest level in several months. The growing interest in the energy market has led to increased total futures volume on the Intercontinental Exchange (ICE) for Brent, which now stands at its highest since January 10, surpassing a record set in March 2020. Similarly, open interest and total futures volumes for WTI on the New York Mercantile Exchange have reached their highest levels since March 2022.
Indian and Chinese refiners are actively seeking alternative fuel supplies as they adapt to new U.S. sanctions on Russian producers and tankers designed to curtail the revenues of the world’s second-largest oil exporter. "There are genuine fears in the market about supply disruption," PVM analyst Tamás Varga commented, noting that while the worst-case scenario for Russian oil appears likely, there remains uncertainty regarding what will occur once Donald Trump takes office next Monday.
Goldman Sachs estimated that vessels targeted by the new sanctions transported 1.7 million barrels per day (bpd) of oil in 2024, representing 25% of Russia’s exports. The bank has increasingly projected a Brent range of $70-$85 to shift upward due to these developments.
Igho Sanomi, founder of oil and gas trading company Taleveras Petroleum, stated that "No one is going to touch those vessels on the sanctions list or take new positions." At least 65 oil tankers have anchored off multiple locations, including Chinese and Russian coasts, since U.S. authorities announced the new sanctions package.
Many of these tankers are carrying Russian oil, with several sources confirming their presence in the area. Tankers flagged by sea rescue services are reportedly being monitored by U.S. intelligence agencies as part of efforts to mitigate potential supply disruptions. "The situation is highly volatile," said one anonymous market participant, noting that prices remain extremely sensitive to developments.
In addition to the sanctions on Russian oil and tankers, broader geopolitical tensions continue to weigh on energy markets. The recent escalation in the Gaza Strip peace process has also sparked price volatility as U.S. dollars have weakened against the Euro and the Yen following their respective central banks’ independence decisions. The U.S. labor market data released last Friday showed a 480,000 rise in jobs for August, with unemployment claims decreasing to 375,000 from prior numbers. This has led to expectations of further rate hikes by the Federal Reserve, potentially driving up oil prices.
The impact of U.S.-China trade relations remains significant as well, with ongoing tensions over steel and aluminum tariffs creating uncertainty in global supply chains. Meanwhile, China’s domestic economic data continued to show resilience, with retail sales increasing 9.8% year-on-year, though inflationary pressures have started to emerge, raising concerns about the Fed’s rate hikes.
In summary, the combination of sanctions on Russian oil supplies, fluctuating demand from key importing nations like India and China, and broader global economic headwinds has driven oil prices higher in recent sessions. Experts anticipate that while short-term volatility may persist, the long-term outlook for Brent remains bullish due to strong fundamentals and the increasing resilience of OPEC+ member nations.
This analysis underscores the complex interplay of geopolitical developments and market dynamics shaping energy markets. As sanctions against Russian oil continue to impact global supply chains, the potential for further price increases cannot be ruled out in the coming months.
