(Bloomberg) -- Oil extended gains to hit the highest in more than four months as a fresh wave of US sanctions against Russia’s energy industry threatened to crimp supplies in an already-tightening global market.
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Brent advanced above $81 a barrel, after surging almost 4% in the previous session. West Texas Intermediate was near $78. The US imposed its most aggressive and ambitious sanctions yet on Russia’s oil industry on Friday, targeting large exporters, insurance companies, and more than 150 tankers.
The sweeping moves — which come less than two weeks before US President-elect Donald Trump takes office — throw a spotlight on key markets India and China, with refiners there potentially being forced to seek alternative supplies. India emerged as a vital buyer of Russian crude after Moscow’s 2022 invasion of Ukraine, and China is the world’s largest oil importer.
Crude has rallied in recent weeks, with gains spurred by colder weather, falling US stockpiles, and speculation that Trump officials may tighten curbs against flows from Iran in the coming months. The broad sanctions package from the outgoing Biden administration threatens to bring fresh disruption, potentially changing the market framework for OPEC+ as the alliance plans to start loosening output curbs later this year after a series of delays.
The jump in prices may also provide a challenge for central bankers, including the Federal Reserve, if it leads to stickier inflation. Investors have been scaling back expectations for the pace of interest-rate cuts from the Fed this year, with the US economy proving to be robust and price pressures lingering.
Still, at present, it remains uncertain how the curbs will impact actual flows of crude for producers, shippers, traders and users.
Among banks, Citigroup Inc. said that up to 30% of Russia’s so-called shadow fleet of tankers could be affected, threatening as much as 800,000 barrels a day, although the effective loss may be less that half that figure. Goldman Sachs Group Inc. said it hadn’t changed its expectations for Russian supply as crude could be priced even more cheaply to incentivize buying.
Global oil balances should “call for stable, not soaring oil prices as non-OPEC and non-Russian production is expected to comfortably keep pace with demand,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. “Russian oil could leach into global supplies despite the sanctions — a move that has been re-run many times.”