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Oil price jumps amid US sanctions and meagre stockpile forecasts

Crude oil prices jumped $3 on Friday after the US tightened its sanctions programme against Russian oil exports. The US restrictions raised concerns on the supply level in a volatile global market.

Brent futures climbed $2.88 to $88.88 per barrel as of 10:50 GMT. US West Texas Intermediate (WTI) crude rose $2.91 to $85.82 a barrel. The rise was fuelled by the expected possibility of export disruptions from the Middle East following an attack by Islamist group Hamas on Israel over the weekend.

Kelvin Wong, senior markets analyst at OANDA in Singapore:

[A] geopolitical risk premium still lingers around the corner that is likely to support oil prices in the short-term.

Wong argues that the integrity of the oil market depends on whether supplies from the Middle East and Russia are curbed. However, Commerzbank analysts Thu Lan Nguyen and Carsten Fritsch note that the military conflict in the Middle East has not yet affected price policy significantly.

“There has been no sign so far that the leading oil producing countries in the region will become directly involved in the military conflict, which would threaten to considerably restrict the crude oil output of these countries.”

On Thursday, the US imposed the first sanctions against owners of tankers carrying Russian crude at a price above the $60 limit set by the G7. The move was designed to close loopholes in Russia’s supply mechanism.

Russia is the world’s second-largest oil producer and a major exporter, and tighter US controls might result in reduced supplies.

In addition, the Organisation of the Petroleum Exporting Countries (OPEC) maintained its forecast for global oil demand growth on Thursday, based on signs of global economic resilience and further demand growth in China, the world’s largest oil importer.

Daniel Hynes, senior commodity strategist at ANZ, cited supply as the central problem in the crude oil market, attributing the tightening of US sanctions as the reason for the price rally in early trading on Friday.

“Supply side issues remained the focus in the crude oil market. Sentiment was also boosted after OPEC said it expects crude stockpiles to slump by 3 (million barrels per day) this quarter. That assumes that there are no further supply disruptions emanating from the Israel-Hamas war.”

Data published on Friday showing a one-month decline in China’s crude oil imports did not affect oil prices.

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