Oil prices saw a small dip at the start of trading on Tuesday but stayed near their highest levels in four months. This was driven by increasing demand from Chinese and Indian buyers seeking new suppliers after the Biden administration imposed stricter sanctions on Russian oil.
Brent crude futures slipped 22 cents, or 0.27%, to $80.79 per barrel. U.S. West Texas Intermediate (WTI) crude fell 16 cents, or 0.2%, to $78.66 per barrel. This came after a nearly 2% increase in Monday’s trading.
U.S. Sanctions on Russian Oil
The price drop followed new U.S. sanctions imposed on Russian oil companies. On Friday, the U.S. Treasury Department targeted Gazprom Neft, Surgutneftegas, and 183 vessels in Russia’s “shadow fleet.” These sanctions could cost Russia billions of dollars each month.
Impact on Russian Oil Supply
Analysts from ING explained that the sanctions on Russia’s tanker fleet will make it harder for Russia to bypass the G-7 price cap. They estimate this could remove 700,000 barrels per day from the market, eliminating the surplus expected for this year.
However, the actual impact may be less as buyers and sellers might find ways to continue their trade despite the sanctions.
Extended Impact on Exports
Westpac’s Robert Rennie predicted that Russian crude exports could drop by 800,000 barrels per day over a long period. He also forecasted a 150,000-barrel reduction in diesel exports. These changes could push Brent prices closer to $85 per barrel.
Goldman Sachs agreed, saying Brent could exceed $85 per barrel soon. If Russian and Iranian output decline together, prices might even reach $90.
Impact on U.S. Consumers
U.S. President Joe Biden assured that the sanctions were not intended to harm American consumers. He stated that oil prices would stabilize soon.
Weaker Demand from China
China’s demand for oil has weakened, which could reduce the impact of the supply cuts. Official data showed a drop in Chinese crude oil imports in 2024, marking the first decrease in two decades, excluding the COVID-19 period.
EU Pressures on Russian Oil Price Cap
Meanwhile, six European countries urged the EU to lower the $60 per barrel price cap on Russian oil. The goal is to limit Russia’s financial ability to continue its war in Ukraine.