Oil Prices Hold Steady Near 5-Month High Amid Rising Global Supply Threats

On January 14, 2024, Oil prices are maintaining momentum near a five-month high as supply concerns deepen due to aggressive US sanctions and the possibility of trade tariffs under the incoming Trump administration.

West Texas Intermediate (WTI) crude held steady near $79 a barrel after climbing over 6% in the last two trading sessions. Brent crude closed above $81. On Friday, these gains followed the US unveiling its most severe sanctions yet on Russia’s oil sector. The measures target major exporters, insurance firms, and more than 150 tankers, creating ripples in the global energy market. Meanwhile, 10 European nations advocate for stricter restrictions on Russian oil flows.

Canadian Oil at Risk Amid Trade Tariff Warnings

Canada’s oil exports, a significant contributor to US crude imports, are also scrutinised. Alberta Premier Danielle Smith expressed concerns over potential tariffs from the US when President-elect Donald Trump assumes office next week. Smith, after meeting Trump in Florida, warned that Alberta’s oil might not receive exemptions, despite accounting for the bulk of Canadian crude shipped to the US.

Supply Risks Bolster Oil Market Rally

Oil markets have started the year on a strong footing, with prices rallying nearly 10%. This surge is attributed to a combination of falling US crude stockpiles, colder weather boosting demand, and increasing supply risks. The full extent of the US sanctions’ impact remains uncertain but could lead to a reconfiguration of global oil trade routes. Refiners in Asia, including those in India and China, are now seeking alternative supply sources.

Early Signs of Disruption in Global Oil Flows

Signs of disruption are emerging as the sanctions take effect. A senior Indian official confirmed that vessels subject to sanctions would not be permitted to discharge cargo. Additionally, tanker rates have surged due to the reduced availability of ships, adding pressure to the already strained supply chain.

In the physical oil market, Chinese buyers have moved swiftly to secure prompt supplies from the UAE and Oman, reflecting heightened competition for crude barrels.

Tightening Market Signals Bullish Momentum

News reports suggest a rapidly tightening oil market. WTI’s prompt spread—the price difference between its two nearest contracts—has surged to $1.55 a barrel in backwardation, the most bullish structure in the oil market. This is the widest spread since August, a significant jump from less than 50 cents at the end of 2024.

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