Oil prices eased slightly on Friday but remained on track for a fourth straight week of gains, driven by concerns over tightening supply due to expanded U.S. sanctions on Russia and speculation about forthcoming energy policies under President-elect Donald Trump.
Brent crude futures fell 33 cents, or 0.4%, to $80.96 per barrel by midday in London, still up 1.5% for the week. West Texas Intermediate (WTI) crude futures dropped 22 cents, or 0.3%, to $78.46 a barrel, with a weekly gain of 2.4%. The market is closely monitoring geopolitical developments and demand dynamics as it assesses the potential for further volatility.
Last Friday, the Biden administration announced broader sanctions targeting Russian energy exports, including additional producers and over 180 vessels linked to the nation's oil trade. The sanctions have already caused buyers in India and China-Russia's largest crude markets-to consider alternative suppliers, according to analysts.
"The oil market is in a bit of a wait-and-see mode, trying to understand if there are any supply disruptions from the latest U.S. sanctions on Russia," said Giovanni Staunovo, an analyst at UBS.
The impending inauguration of President-elect Trump is adding to the market's uncertainty. Trump's nominee for Treasury secretary has indicated a willingness to impose stricter sanctions on Russian oil, potentially disrupting supply further. However, some market participants believe Trump may initially use sanctions as leverage in negotiations with Russia, a key global energy player.
Barbara Lambrecht, a commodity strategist at Commerzbank, noted, "If tougher action against Iran becomes likely, oil prices could jump further in the current tense situation. However, we assume that the future U.S. president will initially avoid a price surge and use sanctions as a bargaining tool."
In addition to the geopolitical landscape, recent developments in the Middle East have provided some relief to the market. A ceasefire deal between Israel and Hamas, expected to begin on Sunday, has raised hopes of halting attacks by Yemen's Houthi militia on Red Sea shipping routes. These attacks have previously disrupted global shipping, forcing vessels to take longer routes around Africa, thereby increasing costs.
Economic indicators are also influencing oil prices. Inflation in the U.S. has shown signs of easing, boosting optimism about potential interest rate cuts. Meanwhile, China, the world's largest oil importer, reported economic growth of 5% for 2024, meeting government targets and signaling steady demand for energy resources.
Despite the weekly gains, analysts remain cautious about the near-term outlook. The International Energy Agency has warned that tighter sanctions on Iran could affect as much as 500,000 barrels per day of global crude supply. Furthermore, the continued realignment of trade flows due to sanctions on Russian oil could create additional strain on supply chains.
As traders weigh these factors, Brent crude is expected to close the week with a 1.5% gain, while WTI crude is on track for a 2.6% increase. With Trump's inauguration on Monday, market participants are bracing for potential policy announcements that could further influence oil prices.
