Oil Rises as Sanctions Target Russian Production, Export Flows
Oil prices rose in the global commodities market on Monday as U.S. sanctions target Russian production and export flows. On Monday, Brent crude rose by 1.6%, reaching $80.45 per barrel. The US benchmark West Texas Intermediate (WTI) increased by 1.6%, rising to $76.98 per barrel compared to its prior session close of $75.79.
Both benchmarks surged in response to US sanctions on Russian oil producers and exporters, amplifying concerns over global supply. As a result, oil prices hit their highest level since October 2024.
On Friday, the US Department of the Treasury announced a series of comprehensive measures to uphold the G7 commitment to reduce Russia’s energy revenues, including adding Gazprom Neft and Surgutneftegas, two of Russia’s largest oil producers and exporters, along with their affiliates, to the sanctions list.
The statement also revealed that more than 30 Russian oil field service providers were added to the sanctions list, along with several high-ranking Russian energy officials and executives, including top managers of Russian oil producers.
Moreover, it was reported that the UK also imposed sanctions on Gazprom Neft and Surgutneftegas. US Secretary of the Treasury Janet Yellen emphasised that these sanctions are aimed at countering Russia’s largest source of revenue, which is used to finance its ‘brutal and illegal’ war against Ukraine.
According to the US Department of State, around 80 entities and individuals active in liquefied natural gas (LNG) production and export activities were also sanctioned under the latest measures against Russia.
In response, the Russian Foreign Ministry vowed to retaliate against the US decision, stating that Washington’s ‘hostile actions’ would not go unanswered. ‘The new sanctions are an attempt to harm the Russian economy and at the same time threaten to destabilise global markets,’ the Russian Foreign Ministry said in a statement, Sputnik news agency reported.
These latest sanctions have the potential to erase the expected surplus for the oil market this year, ING commodities strategists said in a note. “On the surface, these sanctions have the potential to have a significant impact on Russian oil flows. Prior to these sanctions, we were already seeing disruptions to Russian (and Iranian) export volumes.
“The Middle East physical market has been stronger as buyers look for alternative grades. In China, ahead of these recently announced sanctions, Shandong Port Group banned US-sanctioned tankers from calling at its ports.
“There are estimates that the Russian shadow fleet ships a little more than 80% of Russian seaborne crude oil exports. And while the true size of the shadow fleet is unknown, there are estimates that it could be as many as 600 tankers,” ING explained.
S&P Global estimates the size of the tanker fleet at 586 vessels, which suggests that around 25% of the shadow fleet has been sanctioned. This could put around 700,000 b/d of Russian crude oil at risk. Losing this volume would wipe out the surplus that we expect for the global oil market this year.
However, actual volumes lost will likely be smaller. Some buyers may choose to ignore these sanctions, and Russia may also rely more heavily on those tankers in the shadow fleet that are not sanctioned to continue the trade.
Analysts said this would put more strain on the shadow fleet. Over time, Russia will likely have to increase its fleet size in order for flows to continue uninterrupted. Also, ING analysts said if sanctions see key buyers stepping away, it would likely see the differential for Russian crude fall.
“If there are logistical bottlenecks shipping Russian crude, we would likely have to see more Western shipping and insurance services used for Russian oil, which would mean that this oil would have to trade below the G-7 price cap of US$60 per barrel.”. #Oil Rises as Sanctions Target Russian Production, Export Flows FG Commissions Two 63MVA, 132/33KV Mobile Substations
