Greg Priddy
The outgoing Biden administration fired a parting salvo of enhanced sanctions at Russia last Friday, January 10. In so doing, it surprised the oil market and shifted the prevailing bearish market zeitgeist. Brent crude climbed sharply in both the January 10 and January 13 trading sessions, settling the latter day at $81.01, up over 5 percent and at its highest level since last August. It remains to be seen whether this will be a lasting trend, however, and several factors could limit any upside to oil prices.
The new sanctions have several targets across the Russian energy sector, including Gazprom Neft and Surgutneftegas, but most importantly, the “ghost fleet” of aging tankers which have been facilitating Russia’s oil exports and allowing much of the volume to evade the price cap of $60 per barrel from U.S. and EU sanctions. The move also limited some of the exemptions that have allowed banks to continue clearing transactions for Russian energy exports.
The U.S. and allied sanctions framework, which has been in place since Russia invaded Ukraine in February 2022, was never intended to completely cut off the country’s oil exports. This would have been too much volume loss for the market to absorb without an economically damaging price spike. The intent was to reroute trade and cap prices in a manner that would reduce Russia’s revenues without that sort of blowback. That worked, though the effective price discount imposed on Russian exports has narrowed over the last three years.
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