WTI Forward curve --6 month front spread

The forward curve in WTI & Brent has risen dramatically today as the shipping and crude markets react to the Biden administration's new sanctions issued Friday. The curve has reacted to the expected cutoff of Russian crude supplies to China and India, which is leading to strength in other crude markets as those 2 large importers of Russian oil are likely to source barrels from other regions.

The new sanctions announced by the Biden administration are targeting producers Gazprom Neft and Surgutneftegaz, as well as 183 vessels that have shipped Russian oil. (Reuters) The sanctions are seen affecting China and India, Russia's top buyers.

The Middle Eastern crude grades have reacted accordingly.? Prompt Dubai crude futures time spreads rose sharply, with the February-March spread assessed by Platts at $1.35/b at the Jan. 13 Asian close, up from 78 cents/b at the Jan. 10 Asian close and a high not seen since Oct. 20, 2023, as per Platts reporting. A crude derivative trader attributed the rally in Dubai time spreads to a combined consequence of both sanctions and market short covers.

The crude curve had been firm prior to today on the back of the low level of Cushing crude supplies at the WTI delivery point. Inventories at the Cushing, Oklahoma delivery point for NYMEX WTI futures fell 2.5 MMBBL in the DOE data seen last week to 20.0 MMBBL, their lowest level since October 2014 and near what is considered an operating minimum. Cushing inventories were 14.1 MMBBL (41%) lower than a year ago and 18.4 MMBBL (48%) below their five-year average. Stocks at Cushing are expected to recover in the weeks ahead as refiners begin a cycle of seasonal maintenance, but they are certainly tight now.(Evans in Energy)

In addition, the recent news from China regarding sanctions reducing port deliveries into the key province of Shandong have also likely supported the crude curve. A source with a Shandong-based independent refinery said no shipowners would move Russian barrels in the short term, but expected prices of Russian barrels would gradually soften to meet the $60/b price cap while the regular shipping market may become tight because of that. (Platts)

In as much as recently U.S. crude production has risen to a record level, that increase seems small compared to the forecasts as to how much crude could be lost due to sanctions against Russia.? Goldman Sachs estimated that vessels targeted by the new sanctions transported 1.7 MMBPD of oil in 2024, or 25% of Russia's exports. Another bank analyst says they see potential short-term disruptions of Russian oil exports of up to around 1 MMBPD. An Indian refinery source said they will likely halt Russian crude purchases in the interim pending further guidance from management. ING adds that "this could put around 700 MBPD of Russian crude oil at risk." ING adds that that will likely reduce the surplus they had foreseen for 2025.

The only drawback we see in the immediate to contain the upward movement for the crude curve is visible on the February vs August spread chart. The spread has risen over the DC chart's upper bollinger band that lies at $5.12. The spread is currently up $2.53 today to a value of $6.58. The high today is $6.95. Support on a pullback is possible at $5.68-5.70 and then near $4.80.? The prior most recent high was seen at $6.42 in July, 2024. Data on the 6 month DC chart going back to October of 2023 suggests further upside resistance in the $7.50 then $8.21--$8.28 area.

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