① With the USA government implementing the broadest sanctions to date against Russia's Oil & Gas revenue last week, the rise in oil prices seems to be becoming uncontrollable... ② Following a nearly 4% surge last Friday, Brent Crude Oil rose again on Monday by approximately 1.43%, pushing the settlement price above $81, reaching a high of $81.68 during the session, a level not seen in over five months.
According to Caixin on January 14 (Editor Xiaoxiang), with the USA government implementing the broadest sanctions to date against Russia's Oil & Gas revenue last week, the rise in oil prices seems to be becoming uncontrollable...
Market data shows that following a nearly 4% surge last Friday, Brent Crude Oil rose again on Monday by approximately 1.43%, pushing the settlement price above $81, reaching a high of $81.68 during the session, a level not seen in over five months.
The settlement price of the USA WTI Crude Oil Block Orders also approached $79 on Monday, setting a new high for the past five months.
Analysts from ANZ Bank mentioned in a report that due to concerns from traders regarding the tightening of global supply following the USA's sanctions on Russia's NENGYUANHANGYE, oil prices have continued to rise recently.
The "most severe sanctions" against Russian oil.
Previously, just about ten days before leaving office, the Biden government in the USA announced that it would implement unprecedented and severe sanctions on Russia's NENGYUANHANGYE. According to the sanctions list published by the USA Department of the Treasury, the two major oil producers and exporters in Russia, Gazprom Neft and Surgutneftegas, became the focus of these sanctions. Additionally, the USA Department of the Treasury will also sanction 183 vessels transporting Russian oil, including several 'shadow ships.'
The new sanctions also involve the oil trading network, including the revocation of a provision that exempted Russian banks from intermediating sanctions on energy payments.
Joseph Dahrieh, the executive responsible for Tickmill, stated that the USA sanctions target major Russian oil producers and the ships transporting Russian oil. As the market digests the supply loss from Russia, one of the largest oil producers globally, a decrease in Russian exports may at least push up recent global Crude Oil prices.
Analysts believe that the new sanctions from the USA on the NENGYUANHANGYE may shift the focus to major buyers of Russian oil, such as India, forcing some refineries to seek alternative supplies. After the outbreak of the Russia-Ukraine conflict in 2022, India has become an important buyer of Russian Crude Oil, while China is the largest oil importer in the world.
Morgan Stanley Analyst Martijn Rats and others wrote that the new sanctions on the Russian oil industry by the USA exceeded expectations. It will take some time to digest these measures, but they present a downside risk for oil supply, at least for a period of time.
In India, some refinery officials have indicated that they are preparing to deal with significant disruptions that could last up to six months, as India plans to refuse to accept tankers under USA sanctions.
Oil field expert Nour Al Ali stated, "This is not the first time the market has prepared for supply disruptions, but the scale and scope of these sanctions pose greater risks. If enforcement intensifies or geopolitical tensions escalate, the Put outlook for oil could shift rapidly, providing bulls with an opportunity to regain market influence by 2025."
Although it is currently impossible to fully determine how these new sanctions will affect the actual Crude Oil flows of producers, shippers, traders, and end-users, some early signs of disruption have already emerged. Shipping data shows that three tankers carrying over 2 million barrels of Russian Crude Oil have been stranded in East Asian waters since the announcement of the sanctions.
Citigroup stated that up to 30% of the tankers in Russia's so-called shadow fleet may be affected, with exports of up to 0.8 million barrels of oil per day at risk, although the ultimate actual loss may be less than half of that figure.
Other disruptors in the oil market.
In addition to the sanctions imposed by the USA on the Russian Energy industry, Trump's threat of tariffs on Canada has significantly boosted WTI Crude Oil prices aimed at the US market. The spot price spread for WTI Crude Oil — the difference between the most recent month and the next month's delivery contracts — has reached its highest point since August, indicating a recent bullish trend.
Danielle Smith, the Premier of Alberta, Canada, stated on Monday that Canada should be prepared for Trump's presidency next week. The USA will impose a 25% tariff on Canadian oil commodities with no exemptions.
More than half of the USA's crude oil imports come from Canada, most of which are from Alberta.
Overall, the crude oil market has started the year strong; aside from the aforementioned sanctions and tariff threats, colder weather, declining US crude oil inventories, and speculation that Trump's officials may strengthen restrictions on Iranian crude oil flows in the coming months have also spurred rising oil prices.
According to the latest position data published last Friday, speculators have increased their overall bullish positions on Brent Crude Oil, with the number of net long contracts rising by nearly 40,000 hands to about 227,000 by January 7. Currently, the net long position in Brent Crude Oil has reached an eight-month high. The net long positions for European diesel and US heating oil have also reached the highest levels since July and September of last year, respectively.
The main supply-side factors that may constrain the rise in oil prices in the future may come from the "OPEC+" alliance, including Russia. This oil-producing country's alliance currently plans to phase in a production recovery starting in April, and its member countries have a large amount of spare capacity.
Rebecca Babin, a senior energy trader at Canadian Imperial Bank of Commerce Private Wealth Group, stated, "Even if OPEC+ does not respond immediately to potential supply disruptions, it is expected that they will begin to lift production cuts in April, which may help to cushion extreme price rebounds, especially when Brent Oil prices rise above 85 dollars."
It can be anticipated that if oil prices continue to soar, leading to heightened inflation, it may pose greater challenges to central banks, including the Federal Reserve. Due to the strong performance of the US economy, price pressures remain, and investors have previously scaled back their expectations for interest rate cuts by the Federal Reserve this year.
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