Oil prices rose after experiencing their largest drop in over a month, as the effects of recent US sanctions on Russian oil flows continue to reverberate across global markets. West Texas Intermediate (WTI) crude edged closer to $78 per barrel after a 1.7% drop on Tuesday, driven by speculation of a potential ceasefire between Israel and Hamas. Meanwhile, Brent crude closed below $80.
The American Petroleum Institute (API) reported a decline in US crude oil inventories by 2.6 million barrels last week. If confirmed by official government data on Wednesday, this would mark the eighth consecutive weekly drawdown.
The latest round of US sanctions on Russian oil has had a profound impact, with buyers of Russian oil increasingly turning to other OPEC+ members, particularly after countries such as India announced plans to block tankers carrying sanctioned cargoes. In China, both state-owned oil companies and large private refiners have ramped up purchases from the Middle East and other regions in anticipation of further disruptions. Freight costs have surged as a result, while physical oil pricing patterns in the US have shifted.
The oil market has had a strong start to 2025, bolstered by these sanctions, as well as increased heating demand due to colder-than-usual temperatures in the Northern Hemisphere and a continued decline in US oil stockpiles. The early market uptick is contrary to widespread predictions that prices would face challenges in 2025, with an anticipated global oil surplus.
In addition to the disruption caused by US sanctions, traders are also monitoring the potential market effects of President-elect Donald Trump’s upcoming second term, including the threat of tariffs that could affect Canadian oil. In anticipation of his Jan. 20 inauguration, the price discount on heavy Canadian crude relative to WTI has widened.
The market’s future balance will come under scrutiny on Wednesday, as both the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) release their monthly reports. Additionally, the US Energy Information Administration (EIA) issued a report on Tuesday, projecting a larger oil surplus in 2025.
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