Oil prices fell yesterday but posted strong gains for the week. Skepticism crept into the market after the US sanctions on Russia’s two biggest oil companies, Rosneft and Lukoil.
These two companies together account for more than five per cent of global oil output.
Yesterday, Brent crude futures dipped marginally to settle at 65 dollars and 94 cents per barrel, while WTI Crude futures fell around half a per cent, to close at 61 dollars and 50 cents per barrel.
For the week, Brent crude futures surged 7.5 per cent and WTI Crude futures also increased 6.8 per cent.
Brent crude futures fell 17 cents, or 0.3%, to $65.82 by 0024 GMT. U.S. West Texas Intermediate crude futures were down 17 cents, or 0.3%, at $61.62. Both benchmarks jumped more than 5% on Thursday and were set for about a 7% weekly gain, the biggest since mid-June.
The first reports about the effect of the latest U.S. sanctions, which target Rosneft and Lukoil, suggest that Chinese and Indian buyers are pausing on new orders until they make sure they are insulated against sanction-related action from Washington.
The pause, according to analysts, however, is unlikely to last very long. Rosneft and Lukoil together account for over 2 million barrels in daily overseas shipments, and most of these shipments are going to China and India.
It would be a challenge for both countries to find a quick replacement, especially in terms of price, what with China already taking in almost all of Iran’s outbound oil flows.
Yet the dominant sentiment on oil markets, after the initial shock, seems to be a conviction that the sanctions will not have any far-reaching seismic effects on the global supply-demand balance.
“Flows to India are at risk in particular … challenges to Chinese refiners would be more muted, considering the diversification of crude sources and stock availability,” Rystad Energy analyst Janiv Shah said in a note, as quoted by Reuters.
China has indeed been building its oil inventories this year, insulating itself from potential supply shocks.
ING commodity analysts recalled the Biden administration’s sanctions on Gazprom Neft and Surgutneftegaz, which failed to have any palpable effect on Russian oil shipments overseas.
“Sanctions on companies producing more than 5m b/d of oil are significant,” Warren Patterson and Ewa Manthey said, adding that “We must wait and see if these latest sanctions are more effective or if Russia can circumvent them, as it did with curbs earlier this year.”