Market Analysis

Global Oil Markets Tighten Following Fresh U.S. Sanctions on Russia

Amos Simanungkalit · 20 Jan13.2K Views

Image Credit: Forbes Middle East

Oil prices rebounded on Monday as supply concerns lingered following two rounds of U.S. sanctions on Russia's energy sector over the Ukraine conflict in the past two weeks.

Brent crude futures rose by 34 cents, or 0.4%, to $81.13 per barrel as of 0042 GMT, recovering from a 0.62% decline in the previous session. U.S. West Texas Intermediate (WTI) crude, set to expire on Tuesday, climbed 59 cents, or 0.8%, to $78.47 per barrel after falling 1.02% on Friday. The more actively traded April contract increased by 36 cents to $77.75 per barrel.

Analyst Tim Evans noted in his "Evans on Energy" newsletter that the sanctions are expected to constrain supply in the near term. The market also saw easing tensions in the Middle East, which tempered oil's upward momentum.

The prompt Brent monthly spread widened slightly to $1.24 per barrel in backwardation, while the WTI spread increased by 17 cents to 66 cents. Backwardation, where near-term prices are higher than future prices, signals tight market conditions.

"Rising tanker rates for unsanctioned vessels and the expanding backwardation in crude calendar spreads are significant indicators of supply concerns," Evans added.

Both Brent and WTI recorded over 1% gains last week, marking their fourth consecutive weekly increase. The sanctions, which targeted more than 100 tankers and two Russian oil producers, prompted a rush by major buyers like China and India for immediate oil shipments. This led to a global scramble for available ships, as traders dealing in Russian and Iranian oil sought non-sanctioned tankers to transport their cargo.