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Crude Oil Prices Rise on Biden Sanctions

Crude oil (CL) prices increased by 2.9% to a four-month high of $78.82 on Monday, 13 January, as fears of a supply crunch intensified amid speculation that recent US sanctions on Russian oil will remove 800,000 barrels of oil from daily supplies. 

The Joe Biden Administration announced the planned sanctions package on Friday, aiming at reducing Russia’s oil and gas revenues to weaken its war efforts in Ukraine.

Despite potentially removing a large sum of Russian oil from the supply market, some analysts note that market actors may still find ways to circumvent sanctions. 

During his last days in office, Biden reiterated that the new, heavier round of sanctions would stabilise prices. Yet, Goldman Sachs noted last Friday that Brent (EB) could rise as high as $90 per barrel if sanctions expanded to Iran under President-elect Donald Trump.

Consumers expected inflation to remain manageable in the short term, though the recent rise in energy prices could hurt households and pressure the consumer price index (CPI).

With uncertainty rising around Trump’s economic policies complicating the outlook for the OPEC+ cartel and the Federal Reserve, investors have paired back expectations of further easing in 2025 as US economic data continue to beat estimates. 

Oil pumpjack and oil barrels with the Russian flag on them

US Sanctions on Russia Ripple 

The US Treasury imposed sanctions on Russian oil giants Gazprom and Surgutneftegas on Friday, along with its “shadow fleet” of 183 oil tankers that transported Russian oil despite previous sanctions. The 11th-hour move was designed to disrupt Russia’s exports and limit its ability to fund its war in Ukraine. According to Goldman, around 25% of Russia’s exports could be affected by the sanctions. The two oil giants alone transported around 970,000 barrels of oil per day in 2024 to major oil buyers India and China, with the entire maritime fleet estimated to have transported over 1.5 million barrels per day.

The severity of the sanctions pushed refiners in China and India to seek alternative sources of supply, pressuring spot prices. On the one hand, according to the latest import data, demand from China disappointed in 2024 due to deflationary pressures. On the other hand, India accounts for 60% of Russian seaborne exports and had already bought Middle East crude ahead of the sanctions, announcing a two-month transition period.  However, both sanctions and increased demand due to a cold snap may be already priced in by the markets, with the upcoming Trump administration weighing on the oil’s outlook.

Biden has put a foot down near the end of his term in a reversal of his softer stance against Russia since the Ukraine invasion. With Chinese imports slugging and new production from Guyana, his move to rotate suppliers makes sense to some. However, with oil prices pushed higher, there is little room for Trump to sanction Iran, which sells 90% of its oil to China. Trump has campaigned for lower oil prices but also called for “maximum pressure” on Iran to limit its nuclear ambitions. (Source: BOE Report)

Rising Oil Prices Impacts 

The rise in oil prices is not only a concern for Trump but also for consumers. Despite gasoline prices at the pump having yet to increase much, diesel, jet fuel, and heating oil have all been moving higher already. As a result, consumers may feel the pressure, with retail and wholesale costs potentially feeding into the CPI through a more widespread round of effects. This could be another headwind for the Fed, which already faces a stronger dollar. Yet, some analysts believe that a stronger dollar is deflationary for commodities, which may be seen in producer prices due for release today, Tuesday, 14 January. Meanwhile, the risk of potential profit-taking also rises ahead of the CPI report due on Wednesday.

Aside from consumers and the Fed, the rally in oil prices complicates the picture for OPEC+ and, to some degree, Trump’s stance against the cartel. OPEC+ plans to reverse its protracted oil production cuts in April 2025, looking to unwind 2.2 million barrels per day. Biden’s sanctions and potential Trump sanctions on Iran leave the upcoming president leaning on the organisation to supply more oil in the market unless Russia finds yet another way to bypass them.

Analysts See More Upside

Goldman analysts expected the prices of Brent to trade in the $70 to $85 per barrel range in the medium term and see prices as high as $90 per barrel should Iran face disruptions. However, JPMorgan (JPM) sees a temporary relief as they expect Russia to bypass sanctions by using non-sanctioned tankers or go as far as reducing prices heavily below the price cap of $60 per barrel. Another factor weighing on oil prices is a potential hostage and withdrawal deal between Israel and Hamas, with Trump pushing for the deal to close by the end of this week.

Conclusion

As the Biden administration exits and Trump prepares to take office, the oil market is at a crossroads after new sanctions were imposed on Russia. 

For now, oil prices may remain elevated, leaving consumers, policymakers, and investors bracing for what’s next. However, with demand from China faltering and India calling for an elongated transition, the effects of the sanctions are rippling across a complex landscape hanging on Russian non-sanctioned fleets and OPEC+.

The indecision surrounding Trump’s potential policies, particularly regarding Iran, adds another layer of complexity to an already volatile market waiting for some clarity.

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