NEW YORK: Oil prices surged around 5% to a two-week high on Thursday after the US imposed sanctions on major Russian suppliers Rosneft and Lukoil over Moscow's war in Ukraine, prompting energy firms in China and India to consider cutting Russian imports.
Brent futures rose US$3.40, or 5.4%, to settle at US$65.99 a barrel, while US West Texas Intermediate (WTI) crude rose US$3.29, or 5.6%, to settle at US$61.79.
Those were the biggest daily percentage gains for both crude contracts since mid-June and their highest closes 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, chief climate and commodities economist at Capital Economics.
Russia was the world's second-biggest crude oil producer in 2024 after the US, according to US energy data.
In addition to soaring crude prices, US diesel futures jumped almost 7%, boosting the diesel crack spread to its highest since February 2024. Crack spreads measure refining profit margins.
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, said Saxo Bank analyst Ole Hansen.
Multiple trade sources told Reuters that Chinese state oil majors have suspended purchases of seaborne Russian oil from the two companies now under US sanctions, providing a further boost to prices.
Kuwait's oil minister said that the Organization of the Petroleum Exporting Countries (Opec) would be ready to offset any shortage in the market by rolling back output cuts.
Russian President Vladimir Putin, however, said it will take time for the global market to replace Russian oil.
"This is, of course, an attempt to put pressure on Russia," Putin added. "But no self-respecting country and no self-respecting people ever decides anything under pressure.
The US said it was prepared to take further action as it called on Moscow to agree immediately 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, investment strategy analyst at Raymond James.
Molchanov noted the US investment bank would "continue keeping an eye on this issue" since Russian exports account for about 7% of global oil supply.
Britain sanctioned Rosneft and Lukoil last week and the European Union has approved a 19th package of sanctions against Russia that includes a ban on imports of Russian liquefied natural gas.
The EU also added two Chinese refiners with combined capacity of 600,000 barrels per day (bpd), as well as Chinaoil Hong Kong, a trading arm of PetroChina, to its Russia sanctions list, its Official Journal showed on Thursday.
The impact of sanctions on oil markets will depend on how India reacts and whether Russia finds alternative buyers, said UBS analyst Giovanni Staunovo.
Refiners in India, which became the largest buyer of discounted seaborne Russian crude in the aftermath of the war in Ukraine, were poised to sharply curtail imports of Russian oil to comply with new US sanctions on Lukoil and Rosneft, industry sources said on Thursday, potentially removing a major hurdle to a trade deal with the US.
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. — Reuters
