oil

Crude oil rally amid strong winter demand and Russian sanctions

Commodities 5 minutes to read

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.

13olh_oil1
Inventory levels at Cushing, the WTI delivery hub, supporting rising front end futures prices compared with deferred

The incoming Trump government is expected to tighten sanctions on Iran, potentially forcing a reduction in the nation’s output, which over the past four years has increased by around 1.3 million barrels per day to a six-year high. From a short-term perspective, the more significant factor is the US Treasury’s announcement on Friday of additional Russian sanctions targeting more than 180 tankers carrying Russian crude, as well as maritime insurance providers based in Russia. These tankers transported more than 1.5 million barrels per day of crude last year, primarily to buyers in China and India.

Despite almost three years of sanctions, Russia has managed to redirect its oil flows, maintaining production and exports. However, the extent of these latest sanctions will take time for the market to absorb. Combined with increased winter demand, the short-term outlook points to price support. However, with prices already up by around USD 10 per barrel, further gains depend on the market’s ability to sustain momentum, thereby supporting recently established long positions held by speculators.

In the week to 7 January, before the latest surge above USD 80 per barrel, speculators increased their net long positions in Brent crude futures by 21% to 227 million barrels, an eight-month high, while the gasoil (diesel) long rose 42% to a six-month high. Note that delayed COT reports covering US-traded futures markets will be released today after the US market close at 20:30 GMT.

Last week, WTI broke solidly higher, first surpassing the 200-day moving average and then the trendline from the September 2023 high, before encountering resistance today around USD 78.50—the October high. While the latest Russia sanctions news is nearly priced in, current momentum may still push prices higher, potentially reaching USD 85, which we in our soon to be published Q1-2025 outlook view as a potential peak.

13olh_oil2
WTI Crude Oil futures - Source: Saxo

Recent commodity articles:

10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: 
COT Report: Managed money's year-end positioning in forex and commodities
20 Dec 2024: 
Silver's resurgence in 2024: A precious metal with an industrial edge
17 Dec 2024: 
Investors cash in: Gold and silver see year-end profit taking
17 Dec 2024: 
Podcast: A wild ride in 2025 awaits
16 Dec 2024: 
COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: 
Commodities weekly: The forward curve and impact on returns
10 Dec 2024: 
Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: 
COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024:
 Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: 
COT: Mixed week in commodities as dollar buying continued
29 Nov 2024: 
Commodities take a breather after action-packed November
28 Nov 2024: 
Coffee surges to a 47-year high
28 Nov 2024: 
Choppy gold market turns to Santa for December support
27 Nov 2024: 
Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: 
COT Report: USD long jumps; Mixed week in commodities
22 Nov 2024: 
Commodity weekly: Strongest performance since April
19 Nov 2024: 
Gold and silver rise on Russia-US tensions
18 Nov 2024: 
COT: Limited dollar demand despite strength; Acclerated metals selling 
11 Nov 2024: 
COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: 
Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: 
Podcast: US election and the market reactions, including commodities
6 Nov 2024: 
Trump and Republican victories spark commodity decline
4 Nov 2024: 
COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: 
Commodity weekly: Some weakness seen ahead of critical week


Disclaimer

Confidentiality and Usage:
You may not reproduce, distribute, or transmit this material or any portion thereof without prior written permission from Saxo.

Nature of Information:
The information provided herein is based on current market conditions and analysts' opinions, which may reflect personal views of the author, and are subject to change without notice. This material does not include a record of any trading prices, or an offer of, or solicitation for, or endorsement to enter into any transaction in any investment product. Any forecast on the economy, markets and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the investment product subject of this material.

Responsibility and Liability:
Saxo accepts no liability for any use that may be made of these comments or for any consequences that arise from such use. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

The information provided in this material is solely for information only. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Accordingly, it should not be relied on or treated as a substitute for specific advice concerning specific situations of any person. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase an investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether any investment product mentioned in this publication is suitable for you.

Notwithstanding the above, insofar as any information provided herein contains research analyses or reports concerning any investment product authored by any foreign research house and is issued or promulgated to a person in Singapore who is not an accredited investor, expert investor, and/or institutional investor, Saxo Capital Market Pte. Ltd. accepts legal responsibility for the contents of this material to the extent required by law. Recipients of such material are to contact Saxo Capital Markets Pte. Ltd. in respect of any matters arising from, or in connection with, this material.

Risk Disclosure:
Trading in investment products involve significant risk, including the risk of losing your entire investment. Historical returns are not a guarantee of future returns. Prices can both rise and fall, and there is a risk that you will not get back the money you invested.

Conflicts of interest:
The author may hold positions in the investment products mentioned. The author does not own positions in the underlying investment product exceeding 0.5% of its market capitalisation, save as otherwise declared. The author is not permitted to trade the mentioned investment products within the first 24 hours after the publication of this article.

Saxo maintains partnerships with companies that compensate Saxo for promotional activities conducted on its platform. Additionally, Saxo has agreements with certain partners who provide retrocession contingent upon clients purchasing specific investment products offered by these partners. While Saxo receives compensation from these partnerships, all content is conducted with the intention of providing clients with valuable options and information.

Publication details:
If any listed companies are the subject of the material, the content has not been submitted to the companies in question prior to publication.

Please refer to our full disclaimer and notification on non-independent investment research for more details.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Saxo is part of the J. Safra Sarasin Group.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.