This week, the price of West Texas Intermediate (WTI) crude oil futures surged above $79 per barrel, marking the highest level since August. The increase comes amid concerns about potential supply disruptions related to Russia.
Last week, the U.S. Treasury Department intensified its pressure on Russia’s oil industry by imposing sanctions on major Russian oil producers and vessels that transport Russian oil.
In a press release, the Treasury Department stated, “The U.S. Department of the Treasury took sweeping action to reduce Russian revenues from energy, including blocking two major Russian oil producers.”
The department added, “These actions also target an unprecedented number of oil-carrying vessels, many linked to the shadow fleet of traders handling Russian oil, as well as Russia-based oilfield service providers and energy officials.”
The sanctions have raised concerns about oil supply, as Russia is the world’s second-largest oil exporter, trailing only Saudi Arabia, and the third-largest producer after the U.S. and Saudi Arabia.
Oil ETFs Gain Ground
The sanctions have driven up worries over oil supplies, benefiting oil-focused exchange-traded funds (ETFs). The United States Oil Fund (USO), which tracks WTI futures and manages $1.3 billion in assets, rose by 4.3% on Friday and another 2% on Monday, although it dipped slightly by less than 1% on Tuesday.
So far this year, USO has increased by 8%, building on a 13.4% rise in 2024.
The Energy Select Sector SPDR Fund (XLE), which invests in oil company stocks, has gained over 6% this year, making it the best-performing sector ETF in the SPDR series. In comparison, XLE grew by just 5.5% last year, far below the S&P 500’s 25% return.
Impact of Supply Disruptions
The future of the oil rally will depend on how the U.S. sanctions affect Russia’s oil supplies, along with other factors influencing global supply and demand.
Analysts at Morgan Stanley highlighted in a research note quoted by Bloomberg News that the new U.S. sanctions on Russia went beyond expectations. “It will take some time to fully assess these measures, but they pose downside risks to oil supply, at least in the short term,” they said.
Currently, prices for Brent crude oil are hovering around $80 per barrel.
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