Oil records third weekly gain on rising winter fuel demand and further Russia sanctions

Falling temperatures spurring demand for heating fuel in US and Europe

A winter storm in Plano, Texas. A storm warning is in place as a cold front has brought freezing temperatures across the north of the US state. AFP

Oil prices posted a third consecutive weekly gain on Friday, driven by higher fuel demand as cold weather gripped parts of the US and Europe, along with sanctions imposed by the US on Russia's oil industry.

Brent, the benchmark for two thirds of the world’s oil, settled 3.69 per cent higher at $79.76 a barrel, while West Texas Intermediate, the gauge that tracks US crude, closed up 3.58 per cent at $76.57 a barrel.

“Oil bulls have been emboldened by the further drop in US crude inventories while falling temperatures are spurring demand for heating fuels,” Han Tan, chief market analyst at Exinity Group, told The National.

On Friday, the US Treasury announced sanctions against Russian oil companies Gazprom Neft, Surgutneftegas, their subsidiaries, over 180 tankers and more than a dozen Russian energy officials and executives.

“The United States is taking sweeping action against Russia’s key source of revenue for funding its brutal and illegal war against Ukraine,” said Janet Yellen, Secretary of the Treasury.

“We are ratcheting up the sanctions risk associated with Russia’s oil trade, including shipping and financial facilitation in support of Russia’s oil exports,” Ms Yellen said.

The reliance on a shadow fleet has allowed Moscow to circumvent sanctions and generate profits in the energy sector, supporting its military offensive against Ukraine.

Last year, there was a 6 per cent increase in Russian revenue from crude oil exports, despite a 2 per cent reduction in export volumes, according to the Centre for Research on Energy and Clean Air.

Meanwhile, areas of the US have been hit by extreme cold this week. A major winter storm is expected to hit south-central and south-eastern states this weekend, with 2.5cm-15cm of snow expected for central Texas and much of Tennessee, the latest forecast by AccuWeather said.

This will create dangerous conditions on the roads as well as flight delays and cancellations from Dallas to Atlanta and Charlotte, it said.

Europe is also experiencing an extremely cold spell, with heavy snow in the UK leading to road, rail and airport closures.

US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1 million barrels for the week ending January 3 compared to the previous week, indicating higher demand for oil, based on data from the Energy Information Administration.

At 414.6 million barrels, the US crude oil inventories are about 6 per cent below the five-year average for this time of year, the data said. However, further price growth may be restricted amid global economic uncertainties.

“Brent bulls’ quest to reclaim the $80 handle may be a stretch for the near term, given the potential for persistent Chinese economic weakness, global trade disruptions, more US supplies under President Trump and an even stronger US dollar,” Mr Tan said.

Brent prices experienced a volatile year in 2024, from a low of about $69 a barrel to a high of $92. After a strong start to the year, prices weakened in the second half due to rising US interest rates and sluggish Chinese oil consumption.

Crude imports from China, the main engine of oil growth for nearly two decades, have shown signs of cooling amid a slowdown in its economy and the rapid adoption of electric vehicles.