Supertanker freight rates rose after the US widened sanctions on Russian oil trade, prompting traders to book ships from other countries to China and India.
The sanctions could take 700,000-800,000 bpd of Russian crude off the market.
Oil prices fell on Tuesday but remained near four-month highs as the impact of new US sanctions on Russian oil remained the market’s main focus.
Brent futures fell 28 cents, or 0.4%, to $80.73 a barrel by 0400 GMT, while WTI crude fell 18 cents, or 0.2%, to $78.64 a barrel.
Prices rose 2% on Monday after the U.S. Treasury Department imposed sanctions on Gazprom Neft and Surgutneftegas. Imposed sanctions include 183 vessels that trade oil as part of Russia’s so-called “shadow fleet” of tankers.
Oil sanctions on Russia have been the dominant driver of oil prices over the past week, and when combined with solid U.S. economic data, tighter supply-demand dynamics have gained some momentum.
While prices took a breather today, their rapid and aggressive rise of about 10% since the beginning of the year is leading to some profit-taking, with upcoming U.S. inflation data raising risks.
The U.S. producer price index (PPI) is due later in the day, followed by consumer price index (CPI) data on Wednesday.
Risks are high for Wednesday’s figures, with a rise in core inflation of more than the projected 0.2% likely to prompt the Federal Reserve to close the door on further interest rate cuts this year.
Lower interest rates generally help spur economic growth, which could support oil demand.
The rebound from the recent three-month peak suggests an improvement in sentiment, but while the overall downward pressures have eased for now, they are insufficient to fuel a sustained broader uptrend.
While analysts expect a significant price impact on Russian oil supplies from the new sanctions, the actual physical impact is hard to predict.
These sanctions have the potential to remove up to 700,000 barrels of supply from the market, likely eliminating the glut we expected this year. However, the actual reduction in flows is likely to be smaller as Russia and buyers find ways around these sanctions.
Sanctions on the shadow fleet could put more pressure on unsanctioned vessels.
Meanwhile, uncertainty about demand from major buyers in China could cushion the impact of tight supply. China’s crude imports fell for the first time in 2024 outside of the COVID-19 pandemic, official data showed on Monday.
New sanctions on Russian tankers are expected to impact crude supplies to China and India, but key players in these countries are still assessing the legal situation and possible workarounds.