Oil prices jumped by about 2% on Monday, reaching a four-month high as market expectations grew that U.S. sanctions on Russian oil would push buyers in India and China to seek alternative suppliers.
Brent crude futures rose by $1.25, or 1.6%, closing at $81.01 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude gained $2.25, or 2.9%, to settle at $78.82.
This marked the highest closing price for Brent since August 26 and for WTI since August 12. Both benchmarks remained in technically overbought territory for the second consecutive day. Over the past three trading sessions, Brent and WTI prices have increased by more than 6%. As a result, the premium of front-month contracts over later-dated futures, known as time spreads, surged to its highest level in several months.
Market activity has been rising, with total futures volume for Brent on the Intercontinental Exchange hitting its highest level since March 2020 on January 10. Open interest and total futures volumes for WTI on the New York Mercantile Exchange reached their highest levels since March 2022.
Chinese and Indian refiners are now actively seeking alternative fuel sources due to new U.S. sanctions targeting Russian oil producers and tankers. These measures aim to reduce revenue for Russia, the world’s second-largest oil exporter.
“There are real concerns in the market about supply disruptions,” said PVM analyst Tamas Varga. “The worst-case scenario for Russian oil may now be looking more likely.”
Goldman Sachs estimates that vessels affected by the new sanctions transport 1.7 million barrels per day (bpd) of oil, or 25% of Russia’s oil exports. The bank is now revising its previous Brent price forecast of $70-$85 per barrel, leaning more toward the upside.
“No one will risk dealing with vessels on the sanctions list or taking new positions,” said Igho Sanomi, founder of oil and gas trading company Taleveras Petroleum.
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