The daily rotation of sentiment runs unabated in oil prices and after a much better performance yesterday, inspired by a tightening distillate market and dovish comments from members of the US Federal Reserve, the mood once again changes this morning. Not by very much it must be noted, but our market is giving us incremental moves to work with and there is more nuance to position taking than commitment. (Incidentally, and it is important to note how the CFTC will resume publishing commitments of traders reports today). Giving a headache to those tracking the impact of less Russian oil around, which is touched upon below, particularly the lack of Gasoil coming from damaged refineries are the overnight API oil stocks. As always, the official US EIA Inventory Report will give much more heft to the state of US demand later, but the APIs are once again giving rise to the idea of demand destruction in the US and a world heading towards oversupply in 2026. The private survey registers builds across the complex; in Crude of 4.4mb, in Distillate of 0.6mb against an expected 1.2mb draw and in Gasoline of 1.5mb against a predicted decline of 0.2mb. Again, not exactly movers and shakers, but enough for bullish tendencies outside of distillates to calm.

Arguably adding to concern is the anxiety spreading in the A.I. trade. The S&P 500 has lost 3.65 percent in the last 5 sessions as the data desert caused by the US government shutdown continues to add pressure already being felt from warnings of overvalues and froth. Much of equity market fortunes will find discovery as a swathe of delayed employment data hits the presses on Thursday. Such September readings of Average Hourly Earnings, Average Weekly Hours, Labour Force Participation will be given much more scrutiny than they ordinarily deserve and will be joined with the heavyweights of the Unemployment Rate and Non-Farm Payrolls, also of September. With Jobless Claims at last being available, the ensuing moves will be in anticipation that any of data will give cues for a reaction by the FED. However, tonight, and even more importantly, is the release of Nvidia third-quarter results. Investors are so dialled in to the fortunes of the tech darling that a stock market overreaction is guaranteed either way but will be much more profound to sentiment if the data shows anything other than a stellar performance.

Are Russian sanctions working?

Our market, and indeed much of these writings, have become a little one-dimensional in how an inordinate amount of time is given to Russia and the profound effect the country has on all aspects of tracking oil prices. Being able only to play the hand one is dealt with, it is a fascination all of us join in on whether the next card laid against our understanding is an ace or a joker and even then, most cards should be considered as ‘wild’. It is difficult to point to anything being more inconsistent in this whole sorry slaughter than the stance of President Trump. Fielding a question on whether he would be supportive of secondary sanctions over the weekend, he answered “that’s OK with me”, which if the market trusted, would arguably send prices higher by several dollars per barrel in crude terms. 

However, the policy of bringing President Putin to talks by isolating the Kremlin’s oil revenue is having success. The unforeseen, aggressive move in October, when the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) added Lukoil and Rosneft to the Specially Designated Nationals List (SDN) has left the Kremlin’s largest customers, India and China, baulking at further commitments to offer berths for Russian oil, well, at least berths that can be viewed. At present analysts reckon on the total purchases by Indian refiners being down by 1mbpd and how China’s seaborne imports have almost halved. 

Even the Moscow Times recognises that to garner any sort of custom, Russian oil prices are having to be marked down once again after the recent US actions. The discount on Urals versus North Sea benchmark Brent widened to $23.51 per barrel on Monday, the largest since March 2023 and according to Bloomberg and Argus quoted in other publications, the price of Urals fell to $36.61 per barrel at the end of last week for cargoes loaded from Novorossiysk even after the drone attacks briefly halted exports. The acceleration for price concession is made acute as the 21st of November deadline approaches in which all dealings with Lukoil and Rosneft must be concluded and then halted. Those that continue in business will feel the wrath of the US treasury with any violation being greeted with exclusion from international dollar-based transactions. 

Yet there is something familiarly smelly about all of this. There is no tracking of China’s SPR, but as we have pointed out before, Reuters make a decent fist of trying to analyse it. Taking the difference between domestic production, imported crude and refinery runs for October, their research suggests a crude oversupply of some 690kbpd which undoubtedly is making its way into the cavernous storage China has constructed for itself in order to counter its national feeling of energy vulnerability. India’s community of refiners have taken the decision to interrupt Russian oil buying because of the US sanctions threat, it is not a government directive because New Delhi is still insisting decisions on energy sourcing will be all about national interest and price. If we believe in the veracity of the observations in the Moscow Times, then how long will such discounts be ignored by China and India? Cynical as it sounds, any hiatus in Asia’s top crude guzzlers is all about how long it will take for the next circumvention of stricter oil trading to be invented. 

There is also something dilutionary affecting the US Treasury’s resolve, being from the US Treasury itself. While there is no path directly allowing Russian oil to continue to make water through Lukoil’s international businesses, the Treasury’s invitation for potential buyers to take over the Russian oil giant’s oversees assets must bring a conflict in where oil originates particularly in the muddle which is the CPC pipeline which carries Kazakh and Russian crude. We suspect a long game here from the Americans, something even the strategists of Moscow would be proud of. Keeping crude oil prices in the sweet-spot range of between $50 and $70/barrel must be a high priority for Washington. Anything approaching the former low number will put the US oil industry in jeopardy. Alternatively, a climb to the latter would bring pressure onto American households already facing a crisis of confidence and an unclear inflation path. Posturing with threats and then letting deadlines slide is a functional necessity. Therefore, if the discounts in exports Russia are being forced to offer are indeed real, then the US Treasury’s announcement made on Monday that income for the Kremlin is diminishing which will see less Russian oil being sold in the future, may well be sound. A bold claim, and one we all will believe when we see it, but as is always the case with Russia, the games are afoot.

Overnight Pricing