Commodities
As Russian oil crosses G7’s price cap, US eyes soft enforcement
© Reuters. FILE PHOTO: Bulk carriers lie at anchor in Nakhodka Bay near the port city of Nakhodka, Russia, December 4, 2022. REUTERS/Tatiana Meel
By Timothy Gardner and Laura Sanicola
WASHINGTON (Reuters) -The Biden administration is poised to increase outreach to western trading houses, insurers and tanker owners to remind them to abide by the Group of Seven’s price cap on Russian oil as the crude trades over that level, sources and experts said.
The approach reflects a desire by Washington to encourage buyers to adhere to the $60 per barrel cap imposed last December on sea-borne exports of Russian crude by the G7, the European Union and Australia in retaliation for Russia’s war on Ukraine.
The administration is expected to use “soft” tactics, instead of widespread threats of harsh enforcement on potential violators as that could upend energy markets, they said.
“The initial inclination on the part of Treasury is to be soft on it, not to come down like a hammer on tankers and tanker owners, to enforce, but enforce quietly with letters, phone calls,” said a source familiar with the administration’s thinking on the matter.
U.S. officials will likely increase communications with trading houses, tanker owners, insurers and others, reminding them that if western maritime services are used, attestations must be kept showing Russian oil was bought under $60, the source said.
A Biden administration source said such conversations with service providers about their requirements have been constant during the implementation of the caps.
“We’ve been having these types of conversations already and they will continue,” the source said.
The price cap bans Western companies from providing services such as transportation, insurance and financing for the oil sold above the cap.
According to Reuters data, Russian Urals crude has been trading at or above the cap for nearly two weeks. Treasury uses a monthly average of prices to calculate the Urals price, which means it may be a while before the Russian oil price can be considered over the cap.
The Treasury’s Office of Foreign Assets Control (OFAC) says individuals or companies who evade, avoid, or violate the cap could face civil or criminal enforcement actions, including fines, and that it will work with other countries to share information about evasion.
“We are hell bent on ensuring that evasions are not distorting the market,” a senior U.S. Treasury official said.
‘POLICY PICKLE’
The administration, however, is set to move slowly, wary of creating ripples in a market that could send rising global oil prices higher.
The administration is in a “policy pickle” because it does not want to come down too hard with enforcement threats and risk boosting global petroleum prices by interfering with the movement of oil, the source with knowledge of administration thinking said.
“They’ll spook the service providers facilitating exports, they certainly don’t want to do that.”
High consumer energy prices are a political risk for President Joe Biden, who is seeking reelection in 2024.
The cap has always had two objectives: reducing Russia’s revenues from oil exports, and ensuring that oil continues to flow to global markets. The administration insists the cap is effective.
Deputy Treasury Secretary Wally Adeyemo has recently spoken with countries with large shipping fleets and shipping trade, while Elizabeth Rosenberg, Treasury’s assistant secretary for terrorist financing and financial crimes, has called protection and indemnity insurance providers, known as P&I clubs, to remind players of requirements related to Russian oil purchases, the administration source said.
COSTS TO RUSSIA
Another U.S. government source said that the Urals price is high because of recent deals to countries that are outside the cap.
Such sales, mainly to India and China, are expensive for Russia, the source said. Russia has to spend money on a ghost tanker fleet and other expenses to ship oil long distances instead of via pipelines mainly to Europe.
Adeyemo said last month the Russian central bank has guaranteed about $9 billion in a reinsurance scheme intended to replace western reinsurance, due to the price cap, money the Kremlin cannot invest in weapons to fight its war in Ukraine.
The State Department is “closely monitoring all vessels engaged in loading of and petroleum products from Russia, as well as potential evasion or non-compliance, including the use of deceptive practices to access coalition services for oil traded above the caps,” a spokesperson said.
If Urals prices continue to climb above the cap, Washington could urge fellow G7 countries and the EU to raise the cap, but that would be a diplomatic and political undertaking that faces resistance from Eastern European countries and U.S. lawmakers.
Ben Cahill, an energy security and climate expert at the Center for Strategic and International Studies, agreed enforcement will proceed slowly.
“We could see stronger enforcement on the tanker fleet and the tracking of the ownership of vessels, better quality of attestation of paperwork,” said Cahill. “But there won’t likely be a dramatic change unless oil prices stay high for a while.”
By Anna Hirtenstein
LONDON (Reuters) -Oil prices surged on Friday and were on track for a third straight week of gains as traders focused on potential supply disruptions from more sanctions on Russia and Iran.
futures gained $2.66, or 3.5%, to $79.58 a barrel by 1154 GMT, reaching their highest in more than three months. U.S. West Texas Intermediate crude futures advanced $2.64, or 3.6%, to $76.56.
Over the three weeks to Jan. 10, Brent has climbed 9% while WTI has jumped 10%.
“There are several drivers today. Longer term, the market is focused on the prospect for additional sanctions,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Short term, the weather is very cold across the U.S., driving up demand for fuels.”
Ahead of U.S. President-elect Donald Trump’s inauguration on Jan. 20, expectations are mounting over potential supply disruptions from tighter sanctions against Iran and Russia while oil stockpiles remain low.
This could materialise even earlier, with U.S. President Joe Biden expected to announce new sanctions targeting Russia’s economy before Trump takes office. A key target of sanctions so far has been Russia’s oil and shipping industry.
“That would be the farewell gift of the Biden administration,” said PVM analyst Tamas Varga. Existing and possible further sanctions, as well as market expectations of draws on fuel inventories because of the cold weather, are driving prices higher, he added.
The U.S. weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and are likely to continue to experience a colder than usual start to the year, which JPMorgan analysts expect to boost demand.
“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by … demand for , kerosene and LPG,” they said in a note on Friday.
Meanwhile, the premium on the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.
Inflation worries are also delivering a boost to prices, said Saxo Bank’s Hansen. Investors are growing concerned about Trump’s planned tariffs, which could drive inflation higher. A popular trade to hedge against rising consumer prices is through buying oil futures.
Oil prices have rallied despite the U.S. dollar strengthening for six straight weeks, making crude oil more expensive outside the United States.
By Karen Braun
NAPERVILLE, Illinois (Reuters) -If anything can derail a price rally, it is a curveball from the U.S. Department of Agriculture.
Chicago corn futures have ticked slightly lower to start the year, but they had climbed nearly 12% in the final two months of 2024, an unusually strong late-year run.
Speculators now hold their most bullish corn view in two years, and luckily for them, the trade has already accepted that last year’s U.S. corn yield was a whopper.
Friday will feature USDA’s biggest data release of the year, with primary focus on the most recent U.S. corn and soybean harvests. U.S. quarterly stocks, U.S. winter wheat seedings and routine global supply and demand updates will also compete for attention.
U.S. CORN AND BEANS
On average, analysts peg U.S. corn yield at 182.7 bushels per acre, down from 183.1 in November. The trade estimate is more than 5 bushels above last year’s record and above USDA’s initial trendline yield for the first time in six years.
Bearish yield outcomes are less likely when the estimates are already large, and only four of 19 polled analysts see corn yield rising from November. However, the range of trade estimates (2.4 bpa) is smaller than usual, flagging the potential for surprise.
In the last decade, analysts anticipated the wrong direction of U.S. corn yield in January only once (2019). They did so three times for soybean yield (2016, 2019, 2022).
But bets are somewhat off for U.S. soybean yield outcomes because USDA’s slashing of the forecast in November was the month’s largest cut in 31 years. Trade estimates indicate some uncertainty around U.S. soybean production as the ranges for both yield and harvested area are historically wide.
Regardless, U.S. soybean supplies are expected to remain ample and at multi-year highs. However, USDA last month pegged 2024-25 U.S. corn ending stocks below the prior year’s level for the first time.
If USDA cuts U.S. corn ending stocks on Friday as expected, it would be the agency’s seventh consecutive monthly reduction. Such a streak has not been observed in at least two decades, reflective of the strong demand that has recently lifted corn prices.
From a market reaction standpoint, these demand dynamics could be somewhat insulating if the U.S. corn crop comes in larger than expected. The last two times CBOT corn had a distinctly negative reaction on January report day were 2012 and 2024, the latter sparked by a huge yield above all trade estimates.
U.S. WHEAT
USDA will not officially issue 2025-26 outlooks until May, but the wheat market will receive its first piece of 2025-26 U.S. crop intel on Friday with the winter wheat planting survey. Total (EPA:) U.S. winter wheat acres are pegged at 33.37 million, very close to both last year and the five-year average.
Analysts have had a rough time anticipating the planting survey in the last two years, coming in almost 1.4 million acres too high last year but lowballing by nearly 2.5 million acres in 2023.
Wheat traders have struggled to find viable bullish narratives despite wheat stocks among major exporters seen dropping to 17-year lows, so another big miss in the U.S. wheat acreage could either support or undermine the recent sentiment.
SOUTH AMERICA
The U.S. crops will probably dominate the headlines on Friday, but it is not too early to watch out for forecast changes in South America. Analysts see USDA upping Brazil’s 2024-25 soybean harvest to a record 170.28 million metric tons from the previous 169 million.
USDA has increased Brazil’s soy crop in three of the last eight Januarys, both on area and yield improvements, and many industry participants have already been factoring in a number north of 170 million tons.
For Argentina, there are already fears that ongoing dry weather could eventually warrant more significant cuts to soybean and corn crops than are anticipated for Friday. American and European weather model runs on Thursday remained stingy with the rainfall over the next two weeks.
USDA already hiked Argentina’s soybean output last month on higher area. The agency increased the crop last January but reduced it in the prior three Januarys. Current crop conditions are slightly worse than a year ago but better than in the prior three years.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Investing.com– Oil prices steadied Thursday as traders digested data showing an unexpected increase in US product inventories, while weak economic data from top importer China weighed.
At 05:25 ET (10:25 GMT), expiring in March gained 0.1% to $76.25 a barrel, while rose 0.1% to $73.37 a barrel.
The crude benchmarks had slumped more than 1% on Wednesday, but trading ranges, and volumes, are likely to be limited throughout Thursday with the US market closed to honor former President Jimmy Carter, ahead of a state funeral later in the session.
China inflation muted in December
Chinese inflation, as measured by the , remained unchanged in December, while the shrank for a 27th consecutive month, data showed on Thursday.
The reading pointed to limited improvement in China’s prolonged disinflationary trend, even as the government doled out its most aggressive round of stimulus measures yet through late-2024.
China is the world’s biggest oil importer, and has been a key source of anxiety for crude markets. Traders fear that weak economic growth in the country will eat into oil demand.
The country is also facing potential economic headwinds from the incoming Donald Trump administration in the US, as Trump has vowed to impose steep trade tariffs on Beijing.
US oil product inventories rise sharply
U.S. gasoline and distillate inventories grew substantially more than expected in the week to January 3, government data showed on Wednesday.
inventories grew 6.3 million barrels against expectations of 0.5 mb, while grew 6.1 mb on expectations of 0.5 mb.
Overall crude also shrank less than expected, at 0.96 mb, against expectations of 1.8 mb.
The build in product inventories marked an eighth straight week of outsized product builds, and spurred concerns that demand in the world’s biggest fuel consumer was cooling.
While cold weather in the country spurred some demand for heating, it also disrupted holiday travel in several areas.
EIA data also showed that US imports from Canada rose last week to the highest on record, ahead of incoming U.S. president Donald Trump’s plans to levy a 25% tariff on Canadian imports.
Canada has been the top source of U.S. oil imports for many years, and supplied more than half of the total U.S. crude imports in 2023.
Strength in the also weighed on crude prices, as the greenback shot back up to more than two-year highs on hawkish signals from the Federal Reserve.
A strong dollar pressures oil demand by making crude more expensive for international buyers.
(Ambar Warrick contributed to this article.)
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