Crude Oil Prices Surge Amid Sanctions and Economic Strength
Price Rally Driven by New Sanctions Against Russia and Positive US Employment Data
February WTI crude oil (CLG25) closed on Friday with an increase of +2.65 (+3.58%), while February RBOB gasoline (RBG25) rose by +0.0466 (+2.30%).
On Friday, both crude and gasoline prices saw a significant jump, with crude reaching a three-month high and gasoline a two-and-three-quarter-month high. This surge followed the US implementation of tougher sanctions on Russian crude oil. Additionally, a stronger-than-expected US payroll report for December pointed to economic robustness, supporting energy demand and crude prices. However, a rise in the dollar index (DXY00) to a two-year high had a contrary effect, weighing negatively on energy prices.
The support for crude prices continued as the US introduced new sanctions targeting Russia’s oil sector. These sanctions specifically aimed at Gazprom Neft and Surgutneftgas, which accounted for approximately 970,000 barrels per day (bpd) of Russian crude exports in the first ten months of 2024, representing around 30% of the country’s tanker flow, according to Bloomberg data. Insurers and traders associated with hundreds of tanker cargoes were also affected by the new measures.
Friday’s US payroll report exceeded expectations, which was positive news for energy demand and crude prices. Nonfarm payrolls increased by +256,000 in December, surpassing predictions of +165,000, marking the most substantial gain in nine months. Notably, the unemployment rate dropped by -0.1 to 4.1%, indicating a stronger labor market compared to the projected steady rate of 4.2%.
A decline in Russian crude exports is likely to support higher crude oil prices. According to Bloomberg’s weekly vessel-tracking data, Russian crude exports fell by -190,000 bpd, bringing the total to 2.88 million bpd in the week ending January 5.
Support for crude was also evident on Monday when Saudi Arabia raised its crude prices for Asian customers for February by 60 cents per barrel, exceeding the expected 10 cent increase. This move suggests that Saudi Arabia anticipates tighter supplies in its largest export market.
Crude stored on tankers worldwide has also diminished, which is encouraging for oil prices. Vortexa reported a 33% week-over-week reduction in crude oil stored on tankers that had been stationary for at least seven days, down to 48.02 million barrels by January 3.
The prospect of new sanctions on both Iranian and Russian crude exports may further restrict global oil supplies, which could prove beneficial for crude prices. Mike Walz, the President-elect Trump’s selection for national security adviser, expressed intentions to reinstate a “maximum pressure” strategy on Iran.
In December, crude gained traction after OPEC+ announced it would delay a planned increase in crude production by +180,000 bpd from January to April. The group also indicated a slower pace in unwinding crude output cuts. The United Arab Emirates (UAE) declared it would postpone its planned increase of 300,000 bpd in crude production targets from January to April. Previously, OPEC+ had scheduled the restoration of 2.2 million bpd of output in monthly increments from January until late 2025, but this timeline has been pushed back to September 2026. In December, OPEC’s crude production decreased by -120,000 bpd to 27.05 million bpd.
China’s weakening crude oil demand is a downside factor for oil prices. Data from Bloomberg reveals that China’s apparent oil demand in November dropped by -2.14% year-on-year to 14.013 million bpd, while apparent demand from January to November fell by -3.26% year-on-year to 13.996 million bpd, making China the second-largest crude consumer worldwide.
According to the EIA report released Wednesday, (1) US crude oil inventories as of January 3 were -5.8% lower than the seasonal five-year average, (2) gasoline inventories were -1.4% below the seasonal five-year average, and (3) distillate inventories were -4.8% below the five-year seasonal average. US crude oil production for the week ending January 3 fell by -0.1% to 13.563 million bpd, slightly below the previous record of 13.631 million bpd set in early December.
Baker Hughes reported a decrease in active US oil rigs, which fell by -2 to 480 rigs in the week ending January 10. This number remains modestly above the 2.75-year low of 477 rigs recorded on November 29. Over the past two years, the US oil rig count has dropped from a high of 627 rigs in December 2022.
On the date of publication, Rich Asplund did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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