Oil prices up 5% on fresh US sanctions against Russia

LONDON: Oil prices rose 5 per cent on Thursday after the US imposed sanctions on major Russian suppliers Rosneft and Lukoil over the Ukraine war, extending gains from the previous session.

Read more: US sanctions Russian oil giants as Moscow conducts nuclear drills

Brent crude futures LCOc1 were up $3.39, or 5.4 per cent, at $65.98 a barrel at 1018 GMT, while US West Texas Intermediate crude futures CLc1 were up $3.31, or 5.7 per cent, at $61.81.

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 Saxo Bank analyst Ole Hansen.

The US said it was prepared to take further action as it called on Moscow to agree immediately to a ceasefire in Ukraine.

Britain sanctioned Rosneft and Lukoil last week. EU countries have approved a 19th package of sanctions against Russia that includes a ban on imports of Russian LNG.

Prompt Brent crude futures switched to backwardation as the first-month Brent contract traded as high as $1.98 above the contract for delivery in six months.

Right after the US sanctions were unveiled, Brent and WTI futures rose by more than $2 a barrel, with support from a surprise decline in US stockpiles.

INDIAN FACTOR

The impact of sanctions on oil markets will depend on how India reacts and if Russia finds alternative buyers, said UBS analyst Giovanni Staunovo.

Read more: Russia sees India keep buying its oil as US says it’s profiteering

India became the largest buyer of discounted seaborne Russian crude in the aftermath of Moscow’s war in Ukraine.

But industry sources said on Thursday that Indian refiners are likely to sharply curtail imports of Russian oil due to the new sanctions.

Privately-owned Reliance Industries, the top Indian buyer of Russian crude, plans to reduce or halt such imports completely, according to two sources familiar with the matter.

But there remains some scepticism in the market about whether the U.S. sanctions would result in a fundamental shift in supply and demand.

“So far, almost all the sanctions against Russia for the past 3-1/2 years have mostly failed to dent either the volumes produced by the country or the oil revenues,” said Rystad Energy analyst Claudio Galimberti.

Oversupply concerns following OPEC+ production increases capped crude’s gains on Thursday. UBS expects Brent to remain between $60-$70.

On the demand side, US crude oil, gasoline and distillate inventories fell last week as refining activity and demand strengthened, the Energy Information Administration said on Wednesday.