Shipping Costs Rise: Freight rates for supertankers surged after the U.S. expanded sanctions on Russia's oil industry, causing traders to scramble for vessels to transport oil to China and India. Both countries are seeking alternative fuel supplies, particularly from regions like the Middle East, due to restrictions on Russian oil exports. As a result, the availability of tankers has tightened, particularly for those previously transporting sanctioned Russian, Iranian, and Venezuelan oil, driving up rates. Shipping costs for routes like the Middle East to China and the U.S. Gulf to China have risen sharply, with rates on some routes hitting their highest levels in over a year.
U.S. Oil Refiners: U.S. oil refiners are facing challenges due to declining profits and weakening fuel demand forecasts, with analysts lowering earnings expectations. The sector has also been impacted by rising refinery utilization, easing gasoline and diesel crack spreads, and fears over potential tariffs on crude imports. Weaker economic activity in the U.S. and China, along with a shift toward electric vehicles, are further contributing to the decline in gasoline demand. Additionally, uncertainty surrounding President-elect Trump’s policies, including potential tariffs on oil imports, is adding to investor concerns.
Russian Sanctions: Citigroup's commodities team warns that new sanctions on Russia could disrupt up to 30% of its crude supply, or roughly 800,000 b/d. The bank notes that over 20 million barrels of empty storage could provide a two-month buffer before production cuts are necessary. Russian seaborne crude exports are primarily transported via a "shadow fleet," and sanctions targeting 30% of this fleet could further reduce exports by 800,000 b/d. Citi suggests Russia might increase refinery output by up to 500,000 b/d to handle stranded crude, though ongoing attacks on refining infrastructure could complicate this solution.
Market Overview: Oil prices paused their rally on Tuesday but remained near four-month highs, with attention focused on the impact of new U.S. sanctions on Russian oil exports to India and China. The sanctions, targeting key Russian producers and vessels, caused prices to rise 2% on Monday, though analysts expect the actual market impact to be less severe than anticipated. While the sanctions could reduce Russia's oil flows, there is uncertainty around the demand from China, which has seen a drop in crude oil imports this year. The market is also watching U.S. inflation data, as stronger-than-expected figures could influence the Federal Reserve's monetary policy and oil demand.
Daily WTI Crude Oil
Similar to ULSD, WTI Crude has traded in overbought territory for the past few sessions, facing little headwinds until today. As you can see at the bottom of the chart the RSI (bottom blue) is showing a value of 72.3, anything over the value of 70 is considered overbought. The contract has also traded above its 200 moving day average (75.38 light blue line) for the past few sessions. Look for that value to act as the first line of technical support for the contract.
Oil prices declined on Tuesday after the U.S. EIA predicted steady U.S. oil demand in 2025 and a slight increase in domestic production. The drop in prices was partially offset by new U.S. sanctions on Russian oil exports to India and China, targeting companies and tankers involved in Russia's "shadow fleet." Analysts are uncertain whether the sanctions will significantly disrupt Russian oil flows, as Russia and buyers may find ways to bypass the restrictions. The EIA's forecast of a 13.55 million bpd U.S. production level in 2025, up from a prior estimate of 13.52 million, raised concerns about an oversupply. Meanwhile, China's crude oil imports fell in 2024, adding to uncertainty about global demand and further dampening market sentiment.
