Crude oil prices rise as US sanctions begin to take effect
What’s happening:-
Crude oil prices climbed on Tuesday as investors assessed the wider impact of the latest US sanctions on Russian oil.
What happened:-
Russia was forced to pull out of Serbia’s largest oil company as well as witness India scaling back purchases of oil.
Meanwhile, investors are hopeful of the US federal government shutdown coming to an end.
Why it matters:-
Investors continued to monitor the impact of the US sanctions on Russia and the crude oil market.
After the US imposed sanctions last month, Russia’s Lukoil declared force majeure on oil shipments at its oilfield in Iraq, signalling the most major fallout till date.
Rising crude oil prices
Russia’s state-controlled company Gazprom Neft agreed to sell its shares in Serbia’s Naftna Industrija Srbije (NIS) after Serbia’s largest oil producer was slapped with sanctions. Meanwhile, five of the largest Indian oil refiners halted their December orders for Russian crude. Saudi Arabia, Iraq, and Kuwait are looking to raise shipments to India for December as refiners seek alternatives to Russia’s oil supply.
Adding to the overall bullish sentiment in the market, the longest federal government shutdown in US history is expected to end this week after Republican and Democratic lawmakers reached a stopgap deal. This would restore federal funding and raise the demand for oil. The House of Representatives is scheduled to vote on the deal later today.
Weakness in the US dollar also lent support to oil prices, as a softer greenback makes commodities cheaper for foreign currency holders. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.2% to 99.44 on Tuesday.
However, concerns over oversupply of crude limited the overall gains during the session. The OPEC+ (Organization of the Petroleum Exporting Countries and allies) announced earlier this month that it would raise output targets for December by 137,000 barrels per day.
Rising crude oil prices
Brent crude oil gained $1.10, or 1.7%, to close at $65.16 per barrel on Tuesday, while WTI crude surged 91 cents, or 1.5%, to finish at $61.04 per barrel.
What to watch:-
The OPEC is scheduled to release its monthly market report today, which would be followed by the IEA’s (International Energy Agency) annual energy assessment.
Data on the EIA’s stockpiles changes in crude oil, gasoline and distillate will be released on Thursday. Crude oil inventories in the US surged by 5.202 million barrels in the week ending October 31, higher than market estimates of 0.6 million barrels.
US sanctions on the Russian energy sector
Oil prices rose at the close of trading on Tuesday, buoyed by the impact of US sanctions on Russia's energy sector and growing hopes for an end to the US government shutdown, although concerns about oversupply limited gains.Brent crude futures for January delivery rose 1.72%, or $1.10, to $65.16 a barrel.Nymex crude oil futures for December delivery also rose by 1.51%, or 91 cents, to $61.04 a barrel.Investors continue to assess the impact of US sanctions on Russia and their effects on crude oil and fuel markets.Sources told Reuters that Russia's Lukoil declared force majeure at one of the oil fields it operates in Iraq, in the biggest direct impact of sanctions imposed last month so far. Markets also found support in hopes of an end to the longest government shutdown in US history after the Senate approved a temporary budget bill that paves the way for the reopening of federal agencies.