Oil prices rise 5% as US sanctions hit Russian oil giants

Oil prices rose on Thursday after the United States unveiled sanctions against Russia’s biggest oil companies, threatening supplies from one of the world’s top producing countries. Brent crude rose more than 5% to trade near $66 a barrel, on course for its biggest daily jump since the start of the Israel-Iran conflict on June 13. The US has blacklisted Russian oil giants Rosneft PJSC and Lukoil PJSC, raising concerns that key buyer India will pull out of deals with Moscow. Brent is currently recovering from a five-month low reached on Monday. Futures also rose on Wednesday amid signs that the recent selloff was overcooked and as U.S. inventories shrank. Rosneft, run by Russian President Vladimir Putin’s close ally Igor Sechin, and privately held Lukoil are the two largest Russian oil producers, together accounting for nearly half of the country’s total exports, according to Bloomberg estimates. The measure comes at a time when global supply looks plentiful as nations inside and outside the OPEC producer alliance raise production amid signs that demand growth is cooling. If India significantly reduces its orders – senior refinery executives have noted that the restrictions would make it virtually impossible for trade to continue – the crucial question will be whether China is willing to fill the gap. While abundant supplies may soften the blow of these sanctions, their effect should not be taken lightly. Reorganizing India’s imports – more than a third of which currently come from Russia – would be a monumental undertaking. The move is also sending ripples through China’s oil industry, which takes as much as 20% of its crude from Russia. Admittedly, Russia has ample experience in evading sanctions, and its final impact remains unclear. The country’s seaborne crude shipments recently hit a 29-month high despite a series of Western restrictions. Earlier this week, US President Donald Trump stated that India’s Prime Minister, Narendra Modi, had assured him that the country would scale back its purchases. Following the measures, Trump announced that he plans to speak with Chinese President Xi Jinping about the country’s Russian oil purchases during a scheduled meeting next week in South Korea. The European Union, meanwhile, put further pressure on the Kremlin and adopted a new package of sanctions targeting Russia’s energy infrastructure, including a complete deal ban on Rosneft and Gazpromneft. The oil market has shown signs of a surplus, with the amount on tankers at sea hitting a record high, and the International Energy Agency expecting global supply to exceed demand by nearly 4 million barrels a day next year.