Russia faces a tight deadline of 10 days before new sanctions on its oil exports begin, which adds to the already tense relationship with the US. The Trump administration has signaled that it plans to penalize countries buying Russian oil, raising geopolitical tensions further. President Trump has made it clear that he does not intend to engage in talks with Russian President Putin. He has also urged the UK to increase oil production from the North Sea, proposing alternative sources to reduce dependency on Russian oil.

Impact On Global Oil Prices

These developments have caused global oil prices to rise, with crude oil climbing from about $67.50 to $69.13 per barrel. This is an increase of roughly $2.20, or 3.24%, reflecting market reactions to the current situation and the risk of supply disruptions. With the impending sanctions on Russian oil, we see a significant shock to global supply. This pressure is already pushing crude prices closer to $70 per barrel. The immediate concern is that countries buying Russian crude may face penalties, which could remove barrels from the market. For traders in derivatives, we think oil prices will likely rise in the short term. This suggests that buying call options on crude oil futures or exchange-traded funds like the XLE might be a good strategy. Expect volatility to increase, which may make options pricier, but also presents opportunities.

Potential Disruption Of Russian Oil Exports

The critical issue is the risk of disrupting over 10 million barrels per day of Russian oil production and exports. Recent data showed that China and India were taking over 60% of Russia’s seaborne crude. If these countries cut back on purchases to avoid US sanctions, the global supply balance will tighten significantly. Previously, after the 2022 invasion of Ukraine, Russia managed to redirect its oil to new buyers. However, these new sanctions are aimed at closing that loophole. We will monitor the Brent-WTI spread, which we expect to widen as Brent prices reflect greater geopolitical risks. If the spread exceeds the current $5, it would indicate serious market stress. While there are discussions about increasing North Sea production in the UK, any new supply will take years to be realized and won’t address the immediate shortfall. The market is more likely to look to OPEC+, as Saudi Arabia and the UAE hold the only significant spare capacity, just over 2 million barrels per day combined. Their willingness to use this spare capacity to stabilize prices remains uncertain. Given the current situation, we expect the CBOE Crude Oil Volatility Index (OVX) to increase significantly. In previous supply shocks, the OVX has risen well above 50, reflecting a high level of market uncertainty. This environment calls for strategies that can benefit from substantial price movements instead of just betting on one direction. Create your live VT Markets account and start trading now.

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