New Sanction On Russia Cause Crude Prices To Surge By Over 3%

Freezing weather also caused traders to rethink demand: File Image/Pixabay

Crude trading this week ended with a bang on Friday, with prices rising over 3 percent due to Washington imposing fresh sanctions against Russia for its ongoing hostilities against Ukraine.

The sanctions target Russian oil companies Gazprom Neft and Surgutneftegas and their subsidiaries, over 180 tankers, and Russian energy officials and executives.

Brent settled up $2.84, or 3.7 percent, at $79.76 per barrel, while West Texas Intermediate settled up $2.65, or 3.6 percent, to $76.57 per barrel; the settlements represented three month highs for each key benchmark.

Bloomberg pointed out that at the same time, "WTI's skew flipped to favour calls for the first time since Dec. 16, signalling traders are willing to pay more for bullish bets and cover wagers that prices would drop."

This could benefit traders who bought call and put options at an identical strike price, which Bloomberg said would be "a welcome change for traders after volatility had fallen by almost half from mid-October to mid-December."

Meanwhile, Anas Alhajji, managing partner at Energy Outlook Advisors, said in a video that the U.S.'s new sanctions will severely disrupt Russian oil exports, and that "India and China (are) scrambling right now to find alternatives."

Bob McNally, president of Rapidan Energy Group, said the sanctions "caught the oil market especially complacent about sanctions risks; therefore, we expect today's material risk premium in Brent to stick pending signals from the Trump team as to whether they will continue these sanctions."

Friday's crude trading was also said to have been buoyed by increased demand for heating oil in the midst of freezing winter conditions across the U.S. and Europe.

JPMorgan analysts stated in a note on Friday, "We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels per day [bpd] in the first quarter of 2025, primarily boosted by ... demand for heating oil, kerosene and LPG."

Another factor that was said to have shaped crude trading this week was the Organization of the Petroleum Exporting Countries (OPEC), whose production dropped by 50,000 bpd in December, largely due to maintenance in the United Arab Emirates and declining Iranian output – which helped ensure that supply remained constrained.