Crude oil rally amid strong winter demand and Russian sanctions

Key points

• Crude prices have recorded strong gains so far this January, supported by winter demand and short-term risks to supply from Russia amid fresh sanctions
• Rising roll yields providing a significant tailwind for bullish positions while discouraging shorting the oil market at this stage
• Fresh US sanctions on Russia impacting tankers that transported more then 1.5 million barrels per day last year

• While the latest sanctions are mostly priced in, the current momentum may still push prices higher towards USD 85, which we highlight as a potential peak in our soon-to-be-published Q1-2025 outlook

WTI and Brent crude oil prices have recorded strong gains so far this January, both trading up by more than 8% following a final quarter of 2024 that saw most activity concentrated near the lower end of ranges prevailing for the past two years. While the 2025 outlook suggests a well-supplied market—driven by non-OPEC+ production growth of around 1.4 million barrels per day, outpacing global demand growth, which the IEA estimates at around 1.1 million barrels per day—the short-term outlook has turned increasingly supportive. This shift is due to a combination of strong winter-related demand for diesel and heating oil and, not least, the latest rounds of US sanctions on Russia’s oil industry, which went much further than expected.

An exceptionally cold January across parts of the US has lifted demand, not only for natural gas, which has surged to a two-year high above USD 4 per MMBtu, but also for diesel and heating fuels. Combined with lower US crude stocks, these developments have already driven up prices ahead of the latest sanctions announcements. US crude inventories at Cushing, the delivery hub for WTI futures, have dropped to an 11-year low, nearing the minimum operating level of 20 million barrels. This inventory drop has strengthened the backwardation structure, where prices for prompt delivery rise faster than those for future delivery.

This development has attracted investor demand due to the positive carry achieved when rolling from an expiring contract to a lower-priced one. At unchanged prices over three months, an investor holding and rolling WTI futures could potentially achieve an annualised return of almost 15%, providing a significant tailwind for bullish positions while discouraging shorting the oil market at this stage.