Crude Oil Prices Surge as U.S. Sanctions Owners Over Russian Price Cap
Oil prices soar, raising supply concerns
Oil prices experienced a significant surge on Friday, leading to substantial weekly gains. This increase came after the United States imposed sanctions on tanker owners for violating the sanctions program against Russian crude exports. The tightening supply in the market further exacerbated concerns over global oil availability.
By 09:50 ET (13.50 GMT), futures for oil traded 3.2% higher at $85.57 per barrel. Additionally, the contract for oil climbed 3.1% to $88.70 per barrel.
U.S. sanctions pose a threat to supply
The U.S. imposed sanctions on Turkey-based and UAE-based owners on Thursday, citing the G-7’s introduction of a price cap of $60 per barrel last year. This cap aimed to reduce Russia’s revenues from seaborne oil exports as part of sanctions for its invasion of Ukraine. A senior Treasury official stated, “Because of the actions we’re announcing today, and the further actions we will take in the coming weeks and months, these costs will continue to rise and Russia’s ability to sustain its barbaric war will continue to weaken,” according to Reuters.
Considering Russia’s status as the world’s second-largest oil producer and a major exporter, the potential for further action could further limit global supply.
Expect hefty weekly gains
The crude oil benchmarks experienced volatile trading throughout the week but are expected to post weekly gains of 4% to 5%. This surge began after a weekend attack by the militant Islamist group Hamas on Israel, which threatened to spill over into other parts of the oil-rich Middle East, intensifying concerns about global supply.
Analysts at ING noted, “Reports that the Iranian government was surprised by the Hamas attack may also ease concern that the U.S. will enforce sanctions against Iran more aggressively, although there have been conflicting reports in recent days regarding Iran’s involvement.”
OPEC maintains oil demand growth forecast
OPEC released its forecast on Thursday, maintaining its prediction that oil demand will rise by 2.25 million barrels per day in 2024. Earlier this week, the reduced its growth forecast for oil demand in 2024 from 1 million barrels per day to 880,000 barrels per day. The differing estimates highlight the contrasting perspectives of the oil producers and the organization.
Previous concerns about slowing global growth due to central banks’ tighter monetary policies addressing elevated inflation heavily impacted the oil markets.
U.S. crude inventories witness significant increase
Official data from the revealed that U.S. crude stockpiles jumped over 10 million barrels last week, marking the largest increase in eight months. The U.S. crude inventory balance rose by 10.176 million barrels during the week to October 6, the most substantial increase since mid-February.
Overall, the recent surge in oil prices, coupled with the U.S. sanctions, raises concerns about global supply. OPEC’s maintained demand forecast and the significant increase in U.S. crude inventories further impact the market dynamics.
