Oil Soars 5% as US Sanctions Hit Russia’s Rosneft and Lukoil
Oil prices climbed approximately 5 percent to reach a two-week high on Thursday following the US sanctions imposed on significant Russian suppliers Rosneft and Lukoil in response to Russia’s war in Ukraine. The sanctions may lead to a decrease in global oil supplies, as Russia ranked as the world’s second-largest crude producer in 2024, following the United States, based on US energy data. Brent futures increased by $3.37, or 5.4 percent, reaching $65.96 a barrel by 12:13 p.m., while US West Texas Intermediate crude climbed $3.33, or 5.7 percent, to $61.83. That positioned both crude benchmarks for their most significant daily percentage increases since mid-June and their highest closing values since October 8.
“The announcement of sanctions by the US on Rosneft and Lukoil is a major escalation in the targeting of Russia’s energy sector and could be a big enough shock to flip the global oil market into a deficit next year,” said David Oxley. Alongside rising crude prices, US diesel futures surged nearly 7 percent, elevating the diesel crack spread to its peak since February 2024. Crack spreads indicate the profitability of refining operations. Analyst Ole Hansen stated, “The US sanctions mean refineries in China and India, major buyers of Russian oil, will need to seek alternative suppliers to avoid exclusion from the Western banking system.” According to multiple trade sources, Chinese state oil majors have halted purchases of seaborne Russian oil from the two companies currently facing US sanctions, which has contributed to a further increase in prices.
Kuwait’s oil minister stated that the Organization of the Petroleum Exporting Countries would be prepared to counter any market shortages by reversing output cuts. Russian President Vladimir Putin stated, “it will take time for the global market to replace Russian oil.” He stated that the new US sanctions represent an effort to exert pressure on Russia, asserting that no self-respecting nation acts under duress. The US expressed its readiness to take additional measures while urging Moscow to promptly agree to a ceasefire in Ukraine. “The various US and EU sanctions thus far have had essentially no effect on Russia’s ability to export oil, so we doubt that this latest round will be game-changing. That said, the Kremlin may need to use more intricate methods to ship its oil covertly, thereby increasing costs,” said Pavel Molchanov. Molchanov remarked that the US investment bank would “continue keeping an eye on this issue” as Russian exports represent approximately 7 percent of the global oil supply.
Last week, Britain imposed sanctions on Rosneft and Lukoil, while the European Union has ratified a 19th package of sanctions against Russia, which features a ban on imports of Russian liquefied natural gas. The EU has included two Chinese refiners, which have a combined capacity of 600,000 barrels per day (bpd), along with Chinaoil Hong Kong in its sanctions list against Russia, as indicated in its Official Journal released on Thursday. “The impact of sanctions on oil markets will depend on how India reacts and whether Russia finds alternative buyers,” said analyst Giovanni Staunovo. Refiners in India, having emerged as the largest purchaser of discounted seaborne Russian crude following the war in Ukraine, are preparing to significantly reduce imports of Russian oil in response to new US sanctions on Lukoil and Rosneft, industry sources indicated on Thursday. This move could potentially eliminate a significant obstacle to a trade agreement with the US. Reliance Industries, a privately owned entity and the leading Indian purchaser of Russian crude, is reportedly considering a reduction or complete cessation of these imports, as indicated by sources.
