Oil gained about $1 on Tuesday on the impact of the latest US sanctions on Russian oil and the optimism over a potential end to the U.S. government shutdown, although oversupply concerns limited gains.
Brent crude increased its value by $1.10 or 1.72 per cent to $65.16 per barrel and the US West Texas Intermediate (WTI) crude climbed 91 cents or 1.51 per cent to $61.04 a barrel.
Investors continued to assess the fallout from the US sanctions on Russia, and their impact on both crude oil and refined fuel markets.
Russia’s Lukoil declared force majeure at an Iraqi oilfield it operates, marking the biggest fallout yet from the sanctions imposed last month.
Restricted fuel exports due to the sanctions are propping up oil prices in the face of a crude oil glut.
Following the October 22 US sanctions on Lukoil and Rosneft, Iraq has stopped all cash and crude payments to Lukoil. Last week, reports emerged that Iraq’s state oil marketing company SOMO had canceled three crude loadings from Lukoil this month after the US sanctioned the second-biggest Russian oil producer last month.
Following the US sanctions on Lukoil and Rosneft, oil traders and operators globally are steering clear of any cargoes of these two biggest Russian oil firms to avoid drawing the attention of the Donald Trump Administration and being slapped with secondary sanctions.
After the US sanctions on Lukoil and Rosneft, “as a result of Russia’s lack of serious commitment to a peace process to end the war in Ukraine,” Lukoil announced it would sell all of its international assets, and reached a preliminary agreement with Switzerland-based commodity trader Gunvor to sell these.
Reuters also reported that Middle Eastern producers Saudi Arabia, Iraq, and Kuwait will raise crude oil supplies to India in December as Indian refiners seek alternatives to Russian barrels.
The markets also saw support as the longest government shutdown in US history could end this week after the Senate approved a compromise that would restore federal funding. The Republican-controlled House of Representatives is due to vote on the deal later on Wednesday.
Worries about crude oversupply are curbing price gains with the main cause of this being the significant expansion of supply by the Organization of the Petroleum Exporting Countries and allies (OPEC+).
Earlier this month, OPEC+ agreed to increase December output targets by 137,000 barrels per day, but also agreed to a pause in increases in the first quarter of next year.
Market analysts noted that the alliance which also Russia, has added 2 million barrels per day of output since April, and a willingness within the group to reverse voluntary production cuts further after the first quarter pause could add an extra 1 million barrels per day in the coming year.