Oil declined as mounting signs of oversupply quelled a bumper rally triggered by US sanctions on key Russian producers last week.
West Texas Intermediate fell 1.9% to again settle close to $60 a barrel, the steepest daily drop in more than two weeks. Investors are better positioned to renew bets now that a looming surplus will push prices down after a massive liquidation of speculative wagers.
The amount of oil being shipped across the world’s oceans hit a record high, indicating that excess supplies continue to rise. In addition, OPEC+ may agree to add more production at a meeting this weekend.
Last week, US President Donald Trump’s administration imposed sanctions on Russia’s two biggest oil producers — Lukoil and state-controlled Rosneft PJSC — to pressure the Kremlin to end the war in Ukraine. The move spurred the biggest unwinding of crude futures positions on record, with bearish wagers held by hedge funds at an all-time high before the sanctions were announced.
The ensuing price spike left cleaner positioning for those looking to bet on a drop. Price swings are also set to be exacerbated by the expiry of tens of thousands of Brent options contracts still held near $65 a barrel.
The impact of the sanctions is still unclear, with traders closely following actions taken by Chinese and Indian energy companies, top buyers of Russian crude.
“The market is now questioning the actual effectiveness of the sanctions,” said Ole Hvalbye, an analyst at SEB AB. “While a full blacklisting sounds dramatic, the mechanisms for enforcement remain unclear, and so far, there are no signs of disrupted Russian flows.”
One Indian refiner plans to seek non-Russian barrels, while others are considering whether they can continue to take some discounted Russian oil cargoes by leaning on small suppliers, instead of Lukoil and Rosneft.
Indian Oil Corp. is “absolutely not going to discontinue” its purchases of Russian crude as long as it complies with international sanctions, director of finance Anuj Jain said in a conference call on Tuesday. A private Chinese processor, meanwhile, has been busy scooping up supplies from Moscow after it was sanctioned, underscoring the cross-current of impacts.
Following the sanctions, Lukoil said it intends to sell its international assets. Geneva-based oil trader Litasco, founded in 2000 as a trading arm for Lukoil, is being shunned by banks while at least some employees mull leaving. And Russian seaborne crude shipments have slipped, but analysts say that may be more of a symptom of weather than sanctions.
Oil is headed for a third straight monthly loss as OPEC+ and rival drillers step up output. Traders are also tracking progress toward a US-China trade deal, with Trump and his counterpart Xi Jinping due to meet at a summit on Thursday after negotiators cleared the way for an agreement.
Ahead of the meeting, Trump has said he may raise the issue of Russian oil imports with Xi.
Elsewhere, Israeli Prime Minister Benjamin Netanyahuordered what he called “forceful strikes” against Hamas in response to attacks on soldiers in Gaza, reviving concerns about flows from the Middle East, source of one-third of the world’s crude.
Oil Prices
WTI for December delivery was 1.9% lower to settle at $60.15 a barrel in New York.
Brent for December settlement fell 1.9% to settle at $64.40.
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