Oil Prices Surge 2.5% Amid Russian Sanctions and Supply Concerns"

Key Highlights:

1. Brent crude rose 2.5% this week, trading at $81.73 per barrel, with WTI up 3.6% at $79.3 per barrel.
2. US sanctions on Russian oil producers and tankers triggered global supply constraints and spiked shipping rates.
3. Cold weather in the US and speculation of Federal Reserve rate cuts bolstered demand expectations.
4. China’s GDP exceeded forecasts, though refinery throughput hit a two-decade low (excluding pandemic years).

US Sanctions Push Oil Prices Higher

• Oil prices rose on Friday and headed toward a fourth consecutive weekly gain as the latest US sanctions on Russian energy trade hit supply and pushed up spot trade prices and shipping rates.
• Brent crude futures rose 44 cents, or 0.5 percent, to $81.73 per barrel by 7:43 a.m. Saudi time. US West Texas Intermediate crude futures were up 62 cents, or 0.8 percent, to $79.3 a barrel.
• Brent and WTI have gained 2.5 percent and 3.6 percent so far this week.

Demand Outlook Strengthened by Cold Weather and Interest Rate Speculation

• Supply concerns from US sanctions on Russian oil producers and tankers, alongside expectations of demand recovery driven by potential US interest rate cuts, are strengthening the crude market, said Toshitaka Tazawa, an analyst at Fujitomi Securities. Additionally, the expected rise in kerosene demand due to cold weather in the US is further supporting market dynamics.
• The Biden administration last Friday announced widening sanctions targeting Russian oil producers and tankers, followed by more measures against Russia’s military-industrial base and sanctions-evasion efforts.
• Moscow’s top customers China and India are now scouring the globe for replacement barrels, driving a surge in shipping rates.
• Investors are also anxiously waiting to see any possible more supply disruptions as Donald Trump takes office next Monday.
• “Mounting supply risks continue to provide broad support to oil prices,” ING analysts wrote in a research note, adding the incoming Donald Trump administration is expected to take a tough stance on Iran and Venezuela, the two main suppliers of crude oil.
• Better demand expectations also lent some support to the oil market with renewed hopes of interest rate cuts by the US Federal Reserve after data showed easing inflation in the world’s biggest economy.

Global Shipping Disruptions Amplify Supply Risks

• Inflation is likely to continue to ease and possibly allow the US central bank to cut interest rates sooner and faster than expected, Federal Reserve Governor Christopher Waller said on Thursday.
• Meanwhile, China’s economic data on Friday showed higher-than-expected economic growth for the fourth quarter and for the full year 2024, as a flurry of stimulus measures came into effect.
• However, China’s oil refinery throughput in 2024 fell for the first time in more than two decades barring the pandemic-hit year of 2022, government data showed on Friday, as plants pruned output in response to stagnant fuel demand and depressed margins.
• Also weighing on the market was that Yemen’s maritime security officials said the Houthi militia is expected to announce a halt in its attacks on ships in the Red Sea, after a ceasefire deal in the war in Gaza between Israel and the militant Palestinian group Hamas.
• The attacks have disrupted global shipping, forcing firms to make longer and more expensive journeys around southern Africa for more than a year.

Expert Opinion: China's Economic Data Offers Mixed Signals for Oil Markets

• Crude oil prices continued their upward trajectory on Friday, heading for a fourth consecutive weekly gain. The latest round of U.S. sanctions on Russian oil producers and tankers has created significant supply constraints, driving up spot trade prices and shipping rates globally. 
• Adding to the market’s uncertainty, Donald Trump’s upcoming inauguration has led to speculation about potential supply disruptions tied to stricter policies on Iran and Venezuela. ING analysts noted, “Mounting supply risks are providing broad support to oil prices.