OIL FUTURES: Crude prices surge above $80/b on US sanctions, tight physical market

Crude oil futures rallied in midmorning trading in Asia on Jan. 13, surpassing the $80/b mark, as additional US sanctions on the Russian energy sector, compounded by the likelihood of new sanctions on Iran under the incoming Trump administration, bolstered prices.

The front-month ICE Brent prices climbed to a more than three-month high at the Jan. 10 close, rising $2.84/b, or 3.69%, from Jan. 9, with the previous high being the Oct. 7, 2024 settle at $80.93/b.

At 11:57 am Singapore time (0357 GMT), the ICE March Brent futures contract was up $1.27/b (1.59%) from the previous close at $81.03/b, while the NYMEX February light sweet crude contract rose $1.33/b (1.74%) from the previous close to $77.90/b.

The crude complex was supported by news that the US Treasury Department imposed additional sanctions on Russia's oil industry.

"The main targets of the sanctions, Gazprom and Surgutneftegas, handled about 970 kb/d of oil by sea in the first 10 months of 2024. There have also been reports that some Chinese ports are being urged to forbid sanctioned oil tankers from docking or unloading at their terminals," Brian Martin and Daniel Hynes, research analysts at ANZ, said in a note drafted Jan. 13.

The major sanctions package tightens curbs against Gazprom Neft and Surgutneftegas, adding over 180 ships, dozens of oil traders, oilfield service providers, tanker owners and managers, insurance companies and energy officials to a blacklist, the US Treasury said in a statement.

"Russia's seaborne crude oil exports slumped to their lowest level since August 2023. Official figures show that its crude output in December was slightly below its OPEC+ quota. Moreover, its ability to ship oil will be further compromised by new US sanctions on its oil industry," Martin and Hynes said.

A slate of new US sanctions on Russian crude and refined product exports issued Jan. 10 is bullish for crude and refined products globally, but history has shown Russian barrels generally find markets despite sanctions, analysts at S&P Global Commodity Insights said, adding that this reality will likely cap the bullish impact of the measure.

Crude prices also surged above $80/b due to the likelihood of President-elect Donald Trump imposing new sanctions on Iran, which would further constrain global oil supply.

"Benchmark crude prices have kicked off the year with an unexpected boost, fueled by speculation that President-elect Donald Trump will intensify oil sanctions on Iran. This comes alongside President Biden's increased sanctions on Russian tankers, contributing to higher oil prices at the start of the year," SPI Asset Management Managing Partner Stephen Innes said Jan. 13.

However, analysts warned that the impact of US sanctions could be limited on a global scale.

"Moreover, even if US sanctions curtail Iranian oil production by 1.5 mb/d -- a scenario similar to that during Trump's previous presidency -- this amount could easily be compensated by OPEC," Innes said.

The crude complex also found support from tight physical fundamentals, leading to a decline in US stockpiles and further buoying prices.

"Tightness in physical markets has led to further drawdowns in US inventories. Commercial crude oil stockpiles recorded their sixth consecutive weekly decline in the US last week," Martin and Hynes said.

Weighing on sentiment, however, is weak Chinese demand, as oil consumption in the world's largest crude importer remains concerning.

"Last year, the oil markets were caught off guard when China's growth plummeted to a mere 150 kb/d from a robust 1.4 mb/d the previous year, a stark contrast to the decade's average increase of 600 kb/d. Traditionally a powerhouse, China had been fueling half of the global oil demand's annual growth until this sudden downturn," Innes said.

Dubai swaps

The March Dubai swap was pegged at $79.17/b at 10:00 am Singapore time (0200 GMT) on Jan. 13, up $2.95/b (0.95%) from the Jan. 10 Asian market close.

The February-March Dubai swap intermonth spread was pegged at $1.26 cents/b, widening 48 cents/b, while the March-April Dubai swap intermonth spread was pegged at $1.06/b, widening 40 cents/b over the same period.

The March Brent-Dubai exchange of futures for swaps was pegged at $2.05/b, rising 55 cents/b from the previous Asian close.