The forecasted imposition of new, severe sanctions on Russia by the United States has resulted in significant shifts in the international oil marketAs the market speculated on the impending effects of these sanctions on Russian oil supply, oil prices experienced a notable surge on January 13, 2024, reaching heights not seen in over three months.

By 6:43 PM, US WTI crude oil futures saw an increase of 2.02%, settling at $78.12 per barrel, while Brent crude futures rose by 1.78%, hitting $81.17 per barrelThis rally can be traced back to the announcement made by the United States Department of the Treasury on January 10, 2024, which stated the initiation of a new wave of sanctions targeting the Russian economyThe sanctions, which included measures against Russia's largest oil producers—Gazprom Neft and Surgutneftegas—as well as 183 oil and gas transportation vessels, have been described as the most stringent yet aimed at Russia’s energy sector by the White House.

The immediate aftermath of this announcement sparked an upward trend in oil-related stocks

In the Hong Kong market, shares of PetroChina (00857.HK) and CNOOC (00883.HK) rose by 2.46% and 2.23%, respectively, concluding the day at HK$6.25 and HK$19.24 per shareMeanwhile, A-share companies like Continental Oil (600759.SH), CNOOC (600938.SH), and CNOOC Development (600968.SH) also reported closing gains exceeding 2%. Conversely, Sinopec (600028.SH), which has a substantial presence in downstream refining, bucked the trend with a decline of 1.27%, closing at ¥6.21 per share.

The introduction of these sanctions further amplifies the risks associated with Russian oil supplyAs the world’s third-largest oil producer, following the United States and Saudi Arabia, and the second-largest exporter, Russia's role in the global oil market is pivotalAnalysts suggest that the new sanctions will expand the risks tied to Russian oil supply in the short term, particularly against a backdrop of low inventory levels

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The resulting anxiety regarding supply has the potential to continuously propel oil prices higher in the near termHowever, in the long-run, experts indicate that this could lead to an increased likelihood of OPEC+ restoring production levels, thereby mitigating the overall impact.

According to Qu Zhao Hui, Chief Analyst for Commodities at China International Capital Corporation, the risk associated with Russian oil supply could skyrocket to nearly 30%. He elaborated that Gazprom Neft and Surgutneftegas together represent around 27% of Russia's oil production, yielding approximately 2.92 million barrels per dayIn terms of exports, these companies contribute about 970,000 barrels per day to Russia's maritime oil export total of 3.34 million barrels per day.

Additionally, Haitong Futures highlighted that with low inventory levels in the market, concern over supply has intensified

By 2025, a confluence of bullish news can be expected, especially given that oil market inventories are significantly lower than their 2024 levelsEven the U.SCushing crude stock has reached multi-year lowsMoreover, amidst a cold wave sweeping the Northern Hemisphere, and with the West reinforcing sanctions against Russia and Iran, expectations around the oil supply side have tightenedThe international oil price has risen continuously over the past ten trading days.

While such price volatility may seem alarming, industry experts suggest that it could also furnish new opportunities within the oil marketHaitong Futures opines that as supply anticipations tighten and international oil prices exceed $80, the likelihood of OPEC+ executing its production restoration plans in April of this year increasesFollowing several rounds of extending production cuts, the organization internally faces mounting collaboration pressures, and the intensified sanctions present a new avenue for OPEC+ to palliate their output.

From a quantitative standpoint, the amount of disruption induced by the new sanctions remains manageable within OPEC+’s regulatory capacity

Xu Pengyan, an energy and chemical analyst with Yi De Futures, mentioned that OPEC+ possesses an excess production capacity exceeding four million barrels per day, and that its regulatory capability increases expediently, serving as a deterrent to the marketXu also asserted that current oil prices appear somewhat inflated, with a premium of around $1.50. As the WTI 2502 contract options are set to expire on January 15, some traders might seek short-term profit-taking, potentially prompting a market correction due to elevated premiums.

Simultaneously, Chinese local refineries—which are regionally known as "teapot" refineries—are beginning to feel the pressure from this new wave of sanctionsBetween January 11 and January 12, the Chinese refined oil market experienced consecutive price hikesAccording to research from Haitong Futures, 'teapot' refineries in Shandong lifted gasoline prices by about ¥700 per ton and diesel prices by approximately ¥550 per ton, translating to an increase of over 10% for both gasoline and diesel

This is appreciably greater than the overall increase in crude oil prices of less than 3.5% on January 10.

Matt Wright, Chief Shipping Analyst at Kpler, noted that among the recently sanctioned vessels, 117 are oil tankers that have collectively transported more than 530 million barrels of Russian crude oil in 2024—accounting for about 42% of Russia's maritime oil export total—of which 102 tankers delivered crude to either China or IndiaImportantly, of the 530 million barrels transported this year, approximately 300 million barrels headed for China, representing roughly 61% of the country's maritime imports of Russian oil; the remaining shipment largely accounted for India, which positioned itself as a sizable buyer absorbing close to one-third of Russia's oil exports.

As these sanctions tighten, sources express concerns that they may considerably diminish the number of vessels available for transporting Russian crude oil

As a direct consequence, freight prices are anticipated to rise sharplyThis predicament leaves China, a significant buyer of Russian ESPO blend crude, predominantly reliant on Shandong for over half of its total maritime imports for 2024.

Industry stakeholders are wary of the pressures local refineries will face amidst increasing restrictions on the maritime trade of Russian crudeMatt Wright highlighted that the new sanctions are expected to widen the price disparity for Russian oil in both the Chinese and Indian marketsCurrent ESPO crude prices have surged to the highest levels observed since November 2022. Testifying to this, pricing on a Delivered Ex Ship (DES) basis for Shandong has edged above Brent by $2.1 per barrelMeanwhile, Xu Pengyan has identified that the reduction of available "cheap oil" for refineries in the Shandong region, together with unsatisfactory crack margins and mounting refinery pressure, is likely to pressure local refineries further, prompting decreased profitability and operational efficiencies.

Nevertheless, it is worth noting that traders from China and India generally tend to avoid direct dealings with vessels and entities blacklisted by the U.S