Oil settled at a three-month high as the US ratcheted up sanctions against Russia, adding to a run of bullish developments that have propelled crude to a strong start to 2025.
Brent futures rose 3.7 per cent to settle above US$79 a barrel while West Texas Intermediate (WTI) closed above US$76. The sweeping sanctions target two firms that handle more than a quarter of Russia’s seaborne oil exports, as well as vital insurers and a vast fleet of tankers. Brent earlier surged 5 per cent to top US$80 as speculation about the measures rippled through the market.
“President Biden opted to go big on energy sanctions his team has been considering over the past several weeks, which caught traders largely complacent about sanctions-related disruption risks,” said Bob McNally, founder of the Rapidan Energy Group and a former White House official.
Crude is up more than 6 per cent this year, a robust start that has taken some market participants by surprise as many banks and agencies had forecast a significant supply glut that would weigh on prices. Now, Citigroup and Morgan Stanley have been among the first to increase price forecasts. Hedge funds have been getting increasingly bullish on crude in recent weeks, with money managers’ net-long positions in Brent at the highest in almost eight months.
While the market had been anticipating additional sanctions on Russia, the potential scope of the restrictions was unclear, and targeting a large number of tankers threatens to significantly constrain the nation’s ability to access vessels. Traders had also been bracing for tougher sanctions on Iranian oil, which would tighten a market already facing dwindling US stockpiles.
The tighter fundamental picture, alongside the cold weather and lower Russian seaborne exports, has buoyed the recent rally.
Under increasingly bullish conditions, “no one wants to be short here,” said Dennis Kissler, senior vice-president for trading at BOK Financial Securities.
Brent’s prompt spread – the price difference between its two nearest contracts – widened to as much as US$1.02 in backwardation, a bullish pattern. A month ago, the spread stood at just 29 US cents. Meanwhile, WTI’s prompt spread rallied to 85 US cents, helping propel a measure of market volatility to the highest in more than a month.
Still, market participants caution that the rally may be short-lived. Technical gauges, such as the relative strength index, signal that crude futures are overbought, and some traders warn the sanctions could be reversed once Trump takes office. BLOOMBERG
