Oil Prices Surge on Sanction Fears Against Russia

Oil prices saw a significant increase on Friday, jumping more than 4%, reaching the highest levels since October. This surge comes as traders are concerned about possible supply interruptions resulting from new sanctions against Russia.

Brent crude futures rose by $3.50, equivalent to 4.6%, reaching $80.42 a barrel by 1422 GMT, marking the first instance of hitting $80 per barrel since October 7. Additionally, U.S. West Texas Intermediate crude futures increased by $3.57, or 4.8%, settling at $77.49.

The United States government is set to implement stringent sanctions on the Russian oil industry, as indicated in a document reviewed by Reuters. These sanctions will target 180 vessels, numerous traders, two significant oil companies, and several high-ranking Russian oil executives.

This document, which appears to originate from the U.S. Treasury, was shared among traders in Europe and Asia. However, Reuters has not been able to confirm the document's authenticity. As President-elect Donald Trump's inauguration approaches on January 20, there is growing anticipation that President Joe Biden's administration will tighten restrictions against both Russia and Iran, particularly while oil reserves remain at low levels.

PVM analyst Tamas Varga noted, "That would be the farewell gift of the Biden administration." He pointed out that existing sanctions, along with speculation regarding more sanctions and expected reductions in fuel inventories due to cold weather, are contributing to rising oil prices. The U.S. weather bureau forecasts that central and eastern regions are likely to experience below-average temperatures, while several areas in Europe are currently dealing with extreme cold conditions.

Meanwhile, analysts at JPMorgan predict a notable increase in global oil demand, forecasting an uptick of 1.6 million barrels per day in the first quarter of 2025. This rise in demand is primarily driven by needs for heating oil, kerosene, and LPG.

This week, the premium on the front-month Brent contract over the six-month contract reached its highest level since August, suggesting possible supply constraints juxtaposed with rising demand.

Furthermore, inflation concerns are also contributing to the higher prices of crude oil, according to Ole Hansen, head of commodity strategy at Saxo Bank. Investors are apprehensive about Trump's proposed tariffs, which could further intensify inflation. A common strategy to hedge against rising consumer prices has been to invest in oil futures.

Despite the U.S. dollar gaining strength for six consecutive weeks, making crude oil more expensive for buyers outside the United States, oil prices have continued to climb.

oil, prices, sanctions