The prices of the crude oil grades surged around 5 per cent on Thursday as energy firms in China and India consider cutting Russian imports following latest sanctions by the United States.
Brent futures increased during the session by $3.40 or 5.4 per cent to $65.99 a barrel and the US West Texas Intermediate (WTI) crude futures chalked up $3.29 or 5.6 per cent to sell at $61.79 per barrel.
The US imposed sanctions on major Russian suppliers, Rosneft and Lukoil, over Russia’s war in Ukraine, prompting the best performance for oil prices in two weeks.
Market analysts noted that the sanctions by the US on the two energy companies is a major escalation in the targeting of Russia’s energy sector and could be a big enough shock to flip the global oil market into a deficit next year.
Despite facing sanctions from European countries, Russia was the world’s second-biggest crude oil producer in 2024 after the US.
The first reports about the effect of the latest sanctions suggest that Chinese and Indian buyers are pausing on new orders until they make sure they are insulated against sanction-related action from the Donald Trump administration.
The sanctions mean refineries in China and India will need to seek alternative suppliers to avoid exclusion from the Western banking system
However, there is another possibility that the pause could likely not last very long because Rosneft and Lukoil together account for over 2 million barrels in daily overseas shipments, and most of these shipments are going to China and India.
ING commodity analysts recalled the Joe Biden administration’s sanctions on Gazprom Neft and Surgutneftegaz, which failed to have any palpable effect on Russian oil shipments overseas.
Russian President Vladimir Putin said it would take time for the global market to replace Russian oil.
Also, the United Kingdom sanctioned Rosneft and Lukoil last week and the European Union has approved a 19th package of sanctions against Russia that includes a ban on imports of Russian liquefied natural gas.
The EU also added two Chinese refiners with combined capacity of 600,000 barrels per day, as well as Chinaoil Hong Kong, a trading arm of PetroChina to its Russia sanctions list.
Meanwhile, Kuwait’s oil minister said that the Organisation of the Petroleum Exporting Countries (OPEC) would be ready to offset any shortage in the market by rolling back output cuts.
Support also came as US diesel futures jumped almost 7 per cent, boosting the diesel crack spread to its highest since February 2024. Crack spreads measure refining profit margins.