Oil Sanctions Send a Jolt Through Market as Bear Case Challenged

(Bloomberg) -- For months, the consensus in the global oil market was that 2025 would be a year marked by a bulky surplus and flat-to-soft pricing. Suddenly — after the boldest package of US sanctions yet against Russia’s energy industry — the outlook is more complicated.

“Just one week into the year, we have already tested the top of the ‘event risk premium’ price range,” RBC Capital Markets LLC analysts including Brian Leisen wrote in a note released on Sunday. “The new Russian sanctions from the outgoing administration are a net addition to at-risk supply.”

Oil hit the highest level in more than four months on Monday, rallying for a second day as investors took stock of the potential market implications of the US package. The measures — unveiled less than two weeks before President-elect Donald Trump takes office — have targeted leading producers, insurers, as well as dozens of the tankers used to ferry cargoes around the world.

“At face value, there’s a case for Brent to reach the upper $80-a-barrel range in the near term, all barrels considered, despite margin headwinds,” said Leisen. “That said, we’ve seen this scenario multiple times in recent years, and supply-chain resilience has consistently outperformed.” 

The outgoing Biden administration had hinted that further action against Moscow was on the cards, citing the same market softness that underpinned widespread expectations for weaker pricing. Last month, US Treasury Secretary Janet Yellen described conditions as “unusual,” with ample supplies and soft demand.

The main risk for the market now is that the latest curbs could gum up flows of Russian oil, and make Moscow’s customers more wary about taking supplies. In addition, there’s a possibility that the incoming Trump administration may toughen sanctions against Iran, another major producer.

Goldman’s View

“Brent could rise just above the top of our range if Russian production briefly falls by 1 million barrels a day, and to $90 a barrel in a combined scenario where Iran supply also falls 1 million barrels a day but in a persistent way,” Goldman Sachs Group Inc. analysts including Daan Struyven said in note.

Still, the bank struck a cautious tone, choosing to maintain for now its base-case outlook for both Russian production and prices, with Brent seen averaging $76 a barrel over 2025. Among the factors behind that view were the scope for greater discounts on Russian flows, as well as the Trump’s likely preference for lower US energy prices.

Citigroup Inc. estimated that as much as 30% of Russia’s so-called shadow fleet of tankers could be affected, threatening as much as 800,000 barrels a day, although the effective loss may be less that half that figure. It described the US package as “unprecedented”.

Market-watchers are contending with shifts other than the far-reaching US sanctions package. Also on the radar — and supportive of higher prices — nationwide stockpiles of crude in the US have contracted for the past seven weeks, the longest run of declines since 2022. In addition, holdings at the key Cushing, Oklahoma, hub have reached their lowest ebb since 2014. Cold weather had supported futures, too, with backwardation widening.

Helping investors to make sense of it all this week, the three leading oil market commentators are all due to deliver their latest monthly snapshots. US government forecasters will weigh in on Tuesday, followed by the Paris-based International Energy Agency and producer group OPEC on Wednesday. At present, the cartel plans to loosen its own supply curbs from April.

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