Brent advances yet further on new sanctions towards Russia. Brent made a big jump on Friday to an intraday high of USD 80.75/b and a close of USD 79.76/b and a gain over the week Friday to Friday of 4.25%. This morning it has traded as high as USD 81.49/b while currently at USD 81.2/b and up 1.9% since Friday.

It will take time for Donald Trump to reverse these sanctions. The new sanctions by Biden on Friday is the primary driver but they come on top of a longer period of falling crude inventories. And time-spreads have been tightening, and flat prices have been rising since early December last year. The new sanctions come under CAATSA (Countering America’s Adversaries Through Sanctions Act). As such they will be harder for Donald Trump to reverse as they require a 30-day Congressional review process to be changed. They will likely stay active for months. Donald Trump could also use them as leverage in the upcoming negotiations with Russia over Ukraine.

Trump could add new sanctions towards Iran and Venezuela to make room for more US crude. Donald Trump’s ambitions of 3 m b/d more US crude oil production will require lower production by someone else in the global market. Most likely Iran and/or Venezuela. So new sanctions may come in that direction as he takes charge. A higher oil price will also likely be necessary. But more importantly the US shale oil sector will likely need visibility that an additional 3 m b/d of crude is needed by the global market sustainably over the coming 3-4 years and not just for a brief period.

New sanctions are removing last loopholes and will likely stay in place for months. The new sanctions are removing the last loopholes in the existing US sanctions scheme towards Russia. All earlier waivers which have kept some of these open will be terminated on 12 March. 183 tankers and the lion’s share of Russia’s shadow fleet is targeted. Gazpromneft and Surgutneftegaz, the second and fourth biggest US oil producers are addressed as well as entities involved in producing and exporting Russian LNG. Western oil field providers won’t be allowed to operate in Russia after 27 February. Russia can still export crude and products on western tankers if the crude price at the origin is USD 60/b or lower with comparable sat levels for oil products.

Russian exports will likely decline with buyers looking to the Middle East instead. These new sanctions will for sure drive down Russian exports of crude, products and LNG. One of several effects is that it will reduce the supply of sour crude to the global market and thus tighten the sweet-sour crude spreads further as well as likely also strengthen high sulfur fuel oil prices relative to Brent crude oil prices. India, China and Turkey import most of Russia’s crude oil and will likely look to buy more oil from the Middle East instead. Chinese teapot refineries are increasingly saying no to crude cargoes on US sanctioned ships.

1-3-month time-spreads are shooting up to above USD 2/b  which is consistent with Brent trading in the range of USD 80-90/b. 1-3-month time-spreads are shooting up to above USD 2/b this morning with average of Dubia, Brent crude and WTI at USD 2.3/b while the Dubai time-spread is the strongest at USD 2.58/b which is natural as China, India and Turkey are likely turning to the Middle East to replace lost Russian barrels. 1-3-month time-spreads at above USD 2/b looks nicely consistent with front-month flat prices in the range of USD 80-90/b. But Brent crude is also in solid ”overbought” territory, so pullbacks are likely to flush that out before Brent sustainably can trade in the USD 80-90/b range.

Brent crude is now well above the 200dma at USD 78.98/b. Brent crude has typically stayed above the 200dma line between one and three months at a time since early 2023.

The Dubai 1–3-month time-spread is shooting up to above USD 2/b as buyers of Russian crude oil are looking towards the Middle East instead of Russia.

Fueled higher with strength seemingly coming from Mid-East benchmarks. Following a setback on Wednesday, Brent crude gained 1% yesterday with a close at USD 76.92/b. This morning it is jumping up another 1.5% to USD 78.1/b. Strength looks like it continues to come from the Middle East where the 1-3 Dubai time-spread this morning has moved to USD 1.44/b and its highest level since late August. The strength in this measure looks like it is accelerating rather than fading and if so, it will likely drive flat prices for all crude grades yet higher.

The ”missing barrels” in Q3-24. Current strength could be reality rather than just a flash in the pan. One of the issues discussed in November was the ”missing barrels”. The IEAs supply/demand balance for Q3 didn’t match the visible, and measured changes in oil inventories. IEA’s supply/demand balance implied an inventory draw of 0.38 m b/d in Q3-24 while the observed draw was 1.16 m b/d. The actual data was 0.78 m b/d tighter than IEA’s estimates. The supply/demand balance of IEA is to a large degree and Excel exercise with large uncertainties as it is fed with data with considerable lags and revisions. If inventory changes in Q3-24 was telling the true story of the global supply/demand balance, then 2025 could be revised significantly tighter without any other changes in the fundamentals than revision of data. The current strength in crude oil could thus be the real face of the supply/demand balance in the global oil market rather than just a temporary flash in the pan. Here is the Bloomberg story on the topic from Nov.

Looks set to break above the 200dma for first time since July. Prices in the 80is then in the cards. The technical picture is still on the verge of overbought with the RSI at 67.6 this morning and quite close to the 70 overbought level. But if further gains are coming gradually rather than rapidly, then this measure could stay below the 70-line. The 200dma is getting closer and closer. With its value today at USD 79/b it won’t take much to jump above. If so, it will be the first move above since July last year and quite a bullish feat and price levels above USD 80/b should then probably be in play.

Brent crude front-month in USD/b versus the Dubai 1-3 month time-spread. The Dubai measure of tightness is accelerating.

Brent crude front-month technical picture. Getting close to break above the 200dma for first time since July last year. But RSI is getting pretty close to ”overbought” territory.

Brent pulled back on technical exhaustion and somewhat disappointing US inventories. Brent crude rose to a high of USD 77.89/b yesterday before selling off along with disappointing US inventory data. It ended the day at USD 76.16/b, down 1.2% from the day before and 2.3% from the intraday high. The RSI measure came very close to overbought level at 70 at the middle of the day. Rises in Brent prices have consistently been rejected further advances earlier when that has happened. Same thing yesterday. The 200 dma also stayed out of reach, though it is not too far away at USD 79.1/b. This morning Brent is trading mostly unchanged at USD 76.1/b. Disappointing Chinese CPI (0.1%) and PPI (-2.3%) measures for December are strong indications that the Chinese economy has not yet turned the corner and are essentially bearish signals for oil though too fluffy and far removed from the physical oil market to impact the oil price directly today.

US crude stocks only fell 1 m b and not 4. Expectations for US oil inventories were quite high as API had indicated on Tuesday that US crude stocks fell 4 m b last week though API did warn for a strong rise in US oil product stocks. Actual data showed that US crude stocks only declined by 1 m b while oil product stocks rose strongly with gasoline stocks up 6.3 m b and diesel stocks up 6.1 m b. The report was a disappointment vs. API in terms of crude declines, but in total the API wasn’t all that off.

US Cushing crude stocks at lowest seasonal level since 2008 is lifting eyebrows. What is disturbing the market is that crude stocks at Cushing Oklahoma where WTI is priced fell 2.5 m b last week following a steady decline through 2024. The current level is the lowest seasonal level since 2008 and the lowest level overall since 2014. The oil market had a nasty experience the other way around in 2020 when WTI on technical, local storage issues, traded down to minus USD 38/b. The price of WTI is specifically set at the Cushing hub and away from the seaborne market. There is thus always a theoretical risk that technical, local issues could take over and divert the price radically away from the global seaborne benchmarks.

Local US price signals will likely sort out the Cushing issues. We do not know the reason for why the crude oil inventory levels at the Cushing hub have fall as low as they have. It is not a symptom of the world or the US running dry on crude oil. It is probably a consequence of US market preferences, pipeline flows, US local oil price spreads and also storage economics in Cushing. So, if conditions at Cushing becomes critical enough these market preferences and price signals will likely change in order to drive Cushing stocks to a level where sufficient operational needs.

Changes in US crude and product stocks last week in m b.

US commercial crude and product stocks versus the 2015-19 average.

US Cushing crude stocks at lowest seasonal level since 2008 and lowest overall since 2014.