Oil Prices Rise Amid Tightening Supply and Geopolitical Tensions

Key Highlights

• Crude Prices: Brent futures rose to $80.14/bbl, while WTI futures reached $76.66/bbl, bolstered by a 2.6M barrel US inventory drop reported by API.
• Freight Rates: VLCC rates surged to WS70.45 on the Middle East-China route, driven by sanctions and heightened tanker demand.
• Sanctions Impact: US sanctions on Russian oil producers and 183 tankers heightened concerns over supply disruptions, with potential to erase a forecasted 700,000 bpd surplus.
• China's Demand: Crude imports fell in 2024, reflecting uncertain demand from the world's largest oil importer, adding to supply-demand imbalance worries.

Petroleum Price: Crude Oil Prices Rise Amid US Inventory Decline

• Crude oil futures traded higher on Wednesday morning after a weekly report by the industry body American Petroleum Institute (API) indicated a decline in inventories in the US for the week ending January 10.
• At 9.58 am on Wednesday, March Brent oil futures were at $80.14, up by 0.28 per cent, and March crude oil futures on WTI (West Texas Intermediate) were at $76.66, up by 0.38 per cent.
• January crude oil futures were trading at ₹6729 on Multi Commodity Exchange (MCX) during the initial hour of trading on Wednesday against the previous close of ₹6736, down by 0.10 per cent, and February futures were trading at ₹6653 against the previous close of ₹6657, down by 0.06 per cent.

Global Freight Rates Surge as Sanctions Tighten Tanker Supply

• Oil shipping rates extended their rally on expectations of a tightening in global tanker supply from wider US sanctions on Russia’s fleet and traders’ demand for ships to load Middle East oil for Asia, industry sources said on Jan 15. 
• The US last week imposed its broadest package of sanctions so far targeting Russia’s oil producers to give Kyiv and Donald Trump’s incoming team leverage to reach a deal for peace in Ukraine.
• On Jan 14, Shell booked three Very Large Crude Carriers (VLCCs), capable of carrying up to two million barrels of oil, at the rate of Worldscale 70 to load Middle East crude in early February. Chinese refiner Shenghong Petrochemical booked two VLCCs for the same loading period at the same rate, a shipbroker said.
• Worldscale is an industry tool to calculate freight charges. For comparison, China’s Unipec earlier booked two VLCCs for late January loading from the Middle East at WS51-52.25.
• Traders are expected to seek more tankers to load crude from Saudi Arabia in February, which could drive freight rates higher, the shipbroker added.
• The robust demand pushed the rate for a VLCC on the Middle East to China route, known as TD3C, higher to WS70.45 on Jan 15, up WS10.75 from the previous day, according to two shipbrokers and a trader.

Petroleum News: Geopolitical Tensions Drive Up Petroleum Market Volatility

• On Monday, prices jumped 2 per cent after the US Treasury Department on Friday imposed sanctions on Gazprom Neft and Surgutneftegas as well as 183 vessels that transport oil as part of Russia’s so-called shadow fleet of tankers.
• Analysts say this move could have a significant price impact on Russian oil supplies from the fresh sanctions, however, their effect on the physical market could be less pronounced than what the affected volumes might suggest.
• ING analysts estimated the new sanctions had the potential to erase the entire 700,000 barrels per day surplus they had forecast for this year, but said the real impact could be lower.
• Uncertainty about demand from China, the world’s largest oil importer, could impact tighter supply this year.
• China’s crude oil imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic, official data showed on Monday.
• Meanwhile, the American Petroleum Institute (API) estimated that crude oil inventories in the US fell by 2.6 million barrels for the week ending January 10.

Expert Opinion: Balancing Supply Surplus Against Sanction Impact

• Oil prices rose, reversing earlier losses, as geopolitical tensions and U.S. sanctions on Russian tankers fueled supply concerns. Market participants remain cautious, assessing the potential impact of disrupted Russian exports and alternative supply measures. 
• A sharper-than-expected drop in U.S. crude stockpiles, reported by the American Petroleum Institute, lent additional support. Inventories fell by 2.6 million barrels last week, highlighting historically low levels at the Cushing storage hub. However, gains were capped as the Energy Information Administration (EIA) forecasted a supply surplus through 2025, projecting Brent prices to average $74 per barrel.