Oil Prices Surge Over 4% Amid Sanctions Concerns on Russia

Oil prices experienced a significant increase of more than 4% on Friday, reaching their highest levels since October. This surge was driven by trader concerns regarding potential supply disruptions resulting from further sanctions against Russia.

Brent crude futures saw an increase of $3.50, equivalent to 4.6%, bringing the price to $80.42 per barrel by 1422 GMT. This marked the first time Brent crude traded at $80 a barrel since October 7. Meanwhile, U.S. West Texas Intermediate crude futures rose by $3.57, or 4.8%, to reach $77.49.

According to a document reportedly from the U.S. Treasury, the United States is set to unveil some of the toughest sanctions against the Russian oil industry to date. The sanctions will target 180 vessels, numerous traders, two major oil companies, and several high-ranking Russian oil executives. This information was shared among traders in Europe and Asia, although the authenticity of the document could not be confirmed by Reuters.

In anticipation of U.S. President-elect Donald Trump's inauguration on January 20, there has been growing speculation that the Biden administration will intensify sanctions against Russia and Iran. This comes at a time when oil stockpiles remain low across global markets.

PVM analyst Tamas Varga commented, "That would be the farewell gift of the Biden administration." He indicated that existing and potential additional sanctions, coupled with the expectation of fuel inventory draws due to colder weather, are pushing prices upward. The U.S. weather bureau has forecasted below-average temperatures for central and eastern parts of the country, while many regions in Europe are already experiencing extreme cold that is likely to persist into the new year.

JPMorgan analysts noted an expected year-over-year increase in global oil demand of 1.6 million barrels per day in the first quarter of 2025, largely driven by rising needs for heating oil, kerosene, and liquefied petroleum gas (LPG). The premium on the front-month Brent contract compared to the six-month contract has reached its widest point since August, potentially signaling supply tightness amidst growing demand.

Inflation concerns are also contributing to the rise in crude oil prices. Ole Hansen, head of commodity strategy at Saxo Bank, mentioned that investors are worried about tariffs proposed by Trump, which could lead to higher inflation. A common practice to hedge against rising consumer prices is to invest in oil futures.

Interestingly, oil prices have seen this upward trend despite a strengthening U.S. dollar over six consecutive weeks, which typically makes crude oil more expensive for buyers outside the United States.

Oil, Prices, Sanctions