By Scott DiSavino
NEW YORK (Reuters) – Oil prices rose about 2% to a four-month high on Monday on expectations that broader U.S. sanctions on Russian oil would force buyers in India and China to look for other suppliers.
futures rose $1.25, or 1.6%, to settle at $81.01 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $2.25, or 2.9%, to $78, 82.
That put Brent on course for its highest close since August 26 and WTI on track for its highest close since August 12, and kept both benchmarks in technically overbought territory for the second day in a row.
In addition, the premium of front-month contracts over later-dated futures, known in the energy sector as time spreads, rose more than 6% over the past three trading sessions to a multi-month high. .
As interest in the energy market grows, total Brent futures volume on the Intercontinental Exchange (NYSE:) rose on January 10 to the highest level since hitting a record in March 2020. Open interest and total futures volumes for WTI on the New York Mercantile The exchange rate rose to the highest level since March 2022.
Chinese and Indian refiners are seeking alternative fuel supplies as they adapt to new U.S. sanctions on Russian producers and tankers aimed at curbing revenues for the world’s second-largest oil exporter.
“There is genuine fear in the market of a supply disruption. The worst-case scenario for Russian oil appears to be a realistic one,” said PVM analyst Tamas Varga. “But it is unclear what will happen when Donald Trump takes office next Monday.”
Goldman Sachs estimated that ships targeted by the new sanctions would carry 1.7 million barrels of oil per day (bpd) in 2024, or 25% of Russia’s exports. The bank increasingly expects its projection for a Brent range of $70-$85 to shift upwards.
“No one will touch the ships on the sanctions list or take new positions,” said Igho Sanomi, founder of oil and gas trading company Taleveras Petroleum.
At least 65 oil tankers have anchored in multiple locations, including off the coasts of China and Russia, since the United States announced the new sanctions package.
Many of the tankers mentioned have been used to ship oil to India and China following previous Western sanctions, and a price ceiling imposed by the Group of Seven countries in 2022 shifted trade in Russian oil from Europe to Asia. Some ships have also carried oil from Iran, which is also subject to sanctions.
Six European Union countries called on the European Commission to lower the price ceiling on Russian oil by the G7 countries, arguing that this would reduce Moscow’s revenues to continue the war without causing a market shock.
FACTORS THAT WEIGH ON OIL PRICES
In a move that could reduce some of the supply risk premium in global oil markets, mediators gave Israel and Hamas a final draft of a deal to end the war in Gaza after a midnight “breakthrough” in the talks attended by envoys from both countries. Biden and Donald Trump.
The dollar climbed to a 26-month high against a basket of other currencies after data last week showed U.S. job growth unexpectedly accelerated in December and the unemployment rate fell to 4.1%, which could lead to higher inflation .
That prompted traders to scale back their bets on how many rate cuts the US Federal Reserve would make this year. Markets were now no longer fully pricing in even one Fed rate cut in 2025, down from roughly two quarter-point cuts at the start of the year.
A stronger U.S. currency could reduce demand for energy by making dollar-priced commodities like oil more expensive for buyers using other currencies.
Higher interest rates, used to combat rising inflation, could also reduce energy demand by raising borrowing costs and slowing economic growth.
