Oil Prices Rise amid On-going Supply Concerns over Russian Sanctions

20 Jan 2025 CW Team

Oil prices rebounded on Monday as supply concerns remained in the market following the US government's imposition of two rounds of sanctions on Russia's energy sector over the on-going Ukraine war.

Brent crude futures rose by 34 cents, or 0.4 per cent, to $81.13 per barrel by 0042 GMT after falling 0.62 per cent in the previous session.

US West Texas Intermediate crude, expiring on Tuesday, reached $78.47 per barrel, up by 59 cents, or 0.8 per cent, after closing down 1.02 per cent. The more actively traded April contract increased by 36 cents to $77.75 per barrel.

Both contracts saw gains of more than 1 per cent last week, marking their fourth consecutive weekly rise, after the Biden administration imposed sanctions on over 100 tankers and two Russian oil producers. This led to a rush by major buyers like China and India for prompt oil deliveries, as well as a global scramble for shipping supplies, as traders dealing with Russian and Iranian oil sought tankers not subject to sanctions.

Analyst Tim Evans, in his newsletter *Evans on Energy*, noted that the new sanctions were expected to reduce supply in the near term. He added that higher tanker rates for unsanctioned vessels and an expanding backwardation in crude oil calendar spreads had been among the significant effects of these sanctions, which increased supply concerns.

Backwardation refers to a market condition where prompt prices are higher than those for future months, signalling a supply shortage.

On Monday, the prompt Brent monthly spread widened in backwardation by 2 cents to $1.24 per barrel, while the WTI spread increased by 17 cents to 66 cents per barrel.

Oil gains were capped by easing tensions in the Middle East, as Hamas and Israel exchanged hostages and prisoners on Sunday, marking the first day of a ceasefire after 15 months of war.

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