Oil Prices Continue to Rise Amidst Concerns About Russian Oil Supply Interruptions and Declining U.S. Inventories

Oil prices have seen an upswing at the start of the year, driven by increasing worries about global oil supply disruptions and alarming decreases in crude inventories in the United States. Recent reports showed that Brent crude oil surpassed $82 a barrel after a notable 2.6% increase earlier this week, marking its highest point since July.

Inventories in the U.S. Drop to Record Lows

According to the latest data released on Wednesday, U.S. inventories have decreased for the eighth consecutive week, reaching their lowest levels since April 2022. This consistent decline in inventories may indicate a tightening physical market for oil. The prompt spread for West Texas Intermediate (WTI), which signifies the difference between its two nearest contracts, has widened to $1.34 a barrel in backwardation. This development is seen as a bullish signal, especially when compared to the 42 cents recorded a month earlier.

Impact of Sanctions on Russian Oil Exports

The market has also been affected by new sanctions announced last week aimed at Russia’s energy sector, prompting fears of significant disruptions to its oil supply and distribution. The International Energy Agency (IEA) highlighted that over 160 tankers that were sanctioned had collectively transported more than 1.6 million barrels of Russian oil daily in 2024, a figure that represents approximately 22% of the country's seaborne oil exports. The IEA further noted that earlier rounds of sanctions have proven highly effective, leading to a 90% decrease in the activities of sanctioned vessels.

In addition to the disruptions caused by these sanctions, buyers of Russian oil are already seeking alternative sources. This shift is evident as oil tankers remain stranded off the coast of China, with traders, refiners, and shippers working to navigate the new limitations. Meanwhile, in India, domestic refiners are taking urgent steps to secure payments for their existing Russian oil purchases.

Global Factors Influencing Oil Prices

Since the beginning of the year, prices for Brent crude have surged by 10%. This rise can be attributed not only to the harsh winter weather increasing oil demand but also to the ongoing uncertainty surrounding shipments from various global suppliers. With fresh sanctions against Russia in place, traders are apprehensive about potential new sanctions against Iran by the incoming administration, which could further threaten oil supply chains.

The rise in oil prices occurred even amidst the recent ceasefire agreement between Israel and Hamas, aimed at pausing the conflict in the Gaza Strip that has persisted for 15 months. This ceasefire is set to commence on Sunday and will continue for six weeks, as confirmed by officials from Qatar and the United States.

Oil, Sanctions, Market