Oil prices rose sharply on Thursday after the United States imposed a new package of sanctions on Russian energy giants Rosneft and Lukoil over the ongoing war in Ukraine.
Brent crude was up $2.71 (4.3%) at $65.30 a barrel by 8:41 GMT, while US WTI crude was up $2.56 (4.4%) at $61.06. The gains extended gains from the previous session and were fueled by both the sanctions and a surprise draw in US crude inventories.
According to Saxo Bank analyst Ole Hansen, the sanctions will force refiners in China and India to look for alternative suppliers if they want to avoid restrictions from the Western banking system. "This will change trade flows and could lead to a more permanent rise in prices", he said.
Washington has said it is ready to take further measures if Moscow does not immediately agree to a ceasefire in Ukraine. Last week, Britain also added "Rosneft" and "Lukoil" to its sanctions list, while EU countries approved the 19th package of restrictions, which includes a ban on imports of Russian liquefied natural gas (LNG).
The impact on the market will depend on the reaction of India, the main buyer of Russian oil after 2022. According to Reuters sources, Indian refiners are already planning to reduce or completely stop purchases of Russian crude, with the largest, Reliance Industries, considering a complete cessation of imports.
"India's response and Russia's ability to find new buyers will be decisive for the direction of the market," said UBS analyst Giovanni Staunovo.
However, some experts remain skeptical. "Almost all the sanctions against Russia over the past three and a half years have failed to significantly reduce either production or oil revenues," said Claudio Galimberti of Rystad Energy.
Oil prices have been under pressure over the past month as increased production by OPEC+ countries has raised concerns about oversupply. But data from the U.S. Energy Information Administration (EIA) showed that crude, gasoline and distillate inventories have fallen, further supporting the current rally.
Analysts expect the market to remain volatile as a combination of geopolitical risks and economic factors continue to dictate short-term movements in crude prices.