Oil prices fell nearly 2% on Tuesday, their third consecutive day of decline, as investors assessed the impact of US sanctions imposed on Russia’s two largest oil companies on global supply and the OPEC+ plan to increase production.
Brent crude futures closed down $1.22, or 1.9%, at $64.40 a barrel. WTI crude futures closed down $1.16, or 1.9%, at $60.15.
Brent and WTI crude oil futures posted their biggest weekly gains since June last week in response to Trump’s decision to impose Ukraine-related sanctions on Russia for the first time in his second term. These sanctions target major oil companies Lukoil and Rosneft.
The US government has given written assurances that Russia’s Rosneft’s operations in Germany will be exempt from sanctions because the assets are no longer under Russian control.
Trump’s granting of this exemption to Germany suggests there may be more leeway in these sanctions, thus alleviating immediate concerns that supply could be significantly constrained.
Fatih Birol, Executive Director of the International Energy Agency (IEA), said on Tuesday that the impact of sanctions on oil-exporting countries will be limited due to excess capacity.
Following the US sanctions, Russia’s second-largest oil producer, Lukoil, announced on Monday that it will sell its international assets.
This move is the most significant step by a Russian company to date following Western sanctions imposed on Russia for its extensive war in Ukraine, which began in February 2022.
Lukoil, headquartered in Moscow, accounts for about 2% of global oil production.
He said Indian refiners have not placed new orders for Russian oil since the imposition of sanctions as they await clarity from the government and suppliers.
Some sources close to the talks said OPEC+ is more likely to increase production modestly in December. The group, which has been restricting production for several years to support the oil market, began reversing those cuts in April.
This raises a larger question about how much spare capacity OPEC+ actually has left.
The CEO of Saudi Arabia’s state oil company, Aramco, said on Tuesday that crude demand was strong even before sanctions were imposed on Rosneft and Lukoil, and that Chinese demand remains healthy.
The increased OPEC+ production is said to help offset a potential supply disruption following US sanctions.
Meanwhile, investors are also weighing the possibility of a trade deal between the US and China, the world’s two largest oil consumers. Trump and Xi Jinping are scheduled to meet in South Korea on Thursday.
Data from the American Petroleum Institute (API) on Tuesday showed that US crude, gasoline, and distillate inventories fell last week.
Sources announced that crude oil inventories decreased by 4.02 million barrels in the week ending October 24. They also noted that gasoline inventories decreased by 6.35 million barrels and distillate oil inventories decreased by 4.36 million barrels compared to the previous week.