US sanctions on Russian oil jolts oil market

The front-month ICE Brent contract has gained by $0.26/bbl on the day, to trade at $65.85/bbl at 09.00 GMT.

IMAGE: Oil storage tanks. Getty Images

Upward pressure:

Brent crude’s price has gained after Washington increased pressure on Russia with major sanctions on Rosneft and Lukoil – two major Russian oil producers, in a move to reduce the country’s revenues that go into funding the ongoing conflict.

The two companies produce more than a combined 5 million b/d of crude oil, or around 50% of total Russian oil production, according to media reports.

“The two companies are the largest producers of oil in Russia, making up nearly half of the country’s total crude exports,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

The announcement comes soon after US President Donald Trump cancelled his plans to meet Russian counterpart Vladimir Putin in Budapest to hold talks for a ceasefire in Ukraine.

The latest US sanctions “mark an important shift” in the US government’s approach towards Russia, according to ING Bank analyst Warren Patterson. It could “potentially having significant ramifications for the oil market,” he said.

Downward pressure:

Brent’s price was under significant downward pressure prior to the announcement of sanctions, as the market was eyeing a surplus through the remainder of 2025 and 2026.

This had “weighed heavily on oil prices, with Brent trading down towards US$60/bbl,” Patterson said.

Besides, supply hikes by OPEC+ producers has weighed on Brent’s price. Earlier this month, eight members of the group agreed to collectively increase their production by another 137,000 b/d in November.

“Lower oil prices create the opportunity to impose sanctions, whilst expectations of abundant supply also provide comfort that the market can manage potential losses in Russian oil supply,” Patterson added.

By Aparupa Mazumder

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