Oil posts weekly gain amid concerns over sanctions curtailing oil supply

The Biden administration in the US is reportedly considering more sanctions on Russia’s oil trade

An oil terminal in Saint Petersburg, Russia. The EU has approved a 15th sanctions package, this time on Russia’s shadow tanker fleet. EPA

Oil prices posted their first weekly gain in three weeks, as the possibility of additional sanctions on Iran and Russia raised supply concerns. However, the potential for an oil market glut next year capped the gains.

Brent, the benchmark for two thirds of the world’s oil, settled 1.47 per cent higher at $74.49 a barrel, while West Texas Intermediate, the gauge that tracks US crude, was up 1.81 per cent at $71.29 a barrel.

The Biden administration in the US is reportedly considering stricter sanctions on Russia’s profitable oil trade, aiming to further pressure the Kremlin’s war efforts in Ukraine weeks before Donald Trump’s return to the White House.

Details of the possible measures are still being worked out, but President Joe Biden’s team is considering restrictions that might target some Russian oil exports, Bloomberg reported on Wednesday, quoting sources.

Meanwhile, the EU has approved a 15th sanctions package, against Russia’s shadow tanker fleet and Chinese companies supplying drones to Moscow.

Western countries have also threatened to put more sanctions on Iran, one of the world’s largest oil producers, over its expanding nuclear programme.

Pressure on Iran has increased, and its influence in the Middle East has weakened, particularly due to recent setbacks faced by its proxy groups, Hamas and Hezbollah, as well as the removal of Syrian president and ally Bashar Al Assad from office.

Oil prices have dropped in the second half of this year as traders focus on demand from China and the possibility of a supply surplus in 2025.

“The general market consensus is for a strongly oversupplied oil market in 2025, which is likely the reason why market positioning is so low and prices are trading at the lower end of the 2024 trading range,” Giovanni Staunovo, strategist at UBS, said in a research note on Wednesday.

The International Energy Agency has revised its oil demand forecast for next year upwards, referring to the impact of China's stimulus measures, but it noted that the growth rate is likely to remain modest.

The Paris-based agency expects global crude demand to grow by 1.1 million barrels a day in 2025, up from its previous forecast of a growth of 990,000 bpd.

The IEA said that oil supply will grow by 1.9 million bpd next year, even without the unwinding of Opec+ production cuts.

Last month, the alliance of oil-producing countries announced that it will extend its voluntary output cuts of 2.2 million bpd until the end of March next year.

After that, the supply curbs will be gradually phased out on a monthly basis until the end of September 2026 to “support market stability”, the group said following its December 5 meeting.

Opec+ also extended its oil production cuts of two million bpd and 1.65 million bpd by a year to the end of 2026.

On Wednesday, Opec reduced its global oil demand growth forecast for 2024 for the fifth consecutive month, marking the largest downgrade so far, citing weaker-than-expected demand in the third quarter across many regions.

The group now expects oil consumption to rise by 1.61 million bpd this year, down from its previous estimate of an increase of 1.82 million bpd.