Oil prices rose by 5% on Thursday after the United States imposed fresh sanctions on Russian oil giants Rosneft and Lukoil due to the ongoing war in Ukraine. Brent crude climbed to $65.98 per barrel, while US West Texas Intermediate reached $61.81. This increase followed growing pressure from Western countries demanding that Russia agree to an immediate ceasefire.
The sanctions are expected to affect refineries in China and India, two of the biggest buyers of Russian crude. To avoid being cut off from Western banking systems, these countries may have to look for new oil suppliers. Britain has already placed sanctions on Rosneft and Lukoil, and the European Union has approved its 19th sanctions package, which includes a ban on Russian liquefied natural gas (LNG).
Shortly after the announcement, Brent and WTI prices jumped by more than $2 per barrel. The oil market also shifted into backwardation, which means prices for immediate delivery became higher than those for later months, showing stronger short term demand. However, analysts from UBS believe Brent prices will likely stay between $60 and $70 per barrel because of oversupply concerns caused by increased production from OPEC+ countries.
India, which became the largest buyer of Russia’s discounted oil after the Ukraine war began, is now expected to sharply reduce its imports. Sources report that Reliance Industries, India’s top private oil refiner, is planning to cut or completely stop buying Russian crude. Yet, some experts remain doubtful about the long-term impact of these sanctions. Analysts argue that most sanctions on Russia over the past few years have failed to significantly reduce its oil production or income.
The future of oil prices largely depends on how India responds and whether Russia can find new buyers. Meanwhile, data from the US Energy Information Administration shows that American crude oil, gasoline, and distillate inventories dropped last week due to stronger demand and higher refining activity. Even with rising demand, worries about excess supply continue to limit further price increases.
