Brent crude prices rallied to US$66 per barrel this week, marking a strong rebound from the US$61–$62 range earlier in the week, following sweeping US sanctions on Russia’s two largest oil companies, Rosneft and Lukoil.
The surge was supported by immediate tightness in global supply after the sanctions rendered Russian barrels unavailable to many buyers.
Brent’s backwardation widened sharply — from just US$0.12 per barrel earlier this week to US$1.36 per barrel at the time of writing — reflecting tight prompt supplies and market fears of deeper disruptions.
On Thursday, October 23, the US administration announced new sanctions on Rosneft, Lukoil, and several of their Russia-based subsidiaries, in a move described as a major escalation of Washington’s economic pressure campaign against Moscow.
The US Department of the Treasury said the measures aim “to increase pressure on Russia’s energy sector and degrade the Kremlin’s ability to fund its war effort and support its weakened economy.”
Rystad Energy’s Vice President of Commodities Markets – Oil, Janiv Shah, said sanctions are already reshaping trade flows in the global oil market.
“The latest sanctions on Russia’s two largest oil companies, Rosneft and Lukoil, resulted in Brent surging 6 per cent in one day as traders and refiners scramble for alternative supplies,” said Shah.
“Overall, we estimate that between 500,000–600,000 barrels per day (bpd) of Russian oil production is at risk of being curtailed.”
Janiv Shah of Rystad Energy said that India and Turkey are expected to reduce their current Russian crude imports, which total nearly two million barrels per day.
He noted that cancellations of Russian purchases by Chinese state-owned companies are likely to increase demand for Middle Eastern medium sour crude grades.
Shah added that the market will respond and adjust to these changes, with a strong possibility that disruptions could make Urals crude politically unviable for many buyers, leading to a wider shift in crude sourcing towards the Middle East and other competing suppliers.
Global liquids balances remain fragile in the short-term outlook, with significant stock builds expected.
However, the market’s sharp reaction to the new sanctions is projected to deliver oil’s strongest weekly gain in months. Analysts note that increased drone strikes on Russian refineries could accelerate production shut-ins as domestic crude demand weakens further.
According to Rystad Energy, between 500,000 and 600,000 bpd of Russian output could be curtailed as a direct consequence of the measures.
Collectively, Rosneft and Lukoil export around 3 million bpd of crude oil and about 1 million bpd of refined products.
Of that, roughly 2 million bpd of crude are shipped from Russia’s Western and Arctic ports to Türkiye, India, and China via maritime routes.
Rosneft also sends around 800,000 bpd to China through the ESPO pipeline system, Kazakhstan, and Far Eastern ports.
India’s major refiners, including Reliance Industries and other state-owned buyers, are expected to scale back imports of Russian crude in the near term.
Meanwhile, Chinese state-owned refiners face persistent restrictions on sanctioned entities, complicating crude flows to the new 400,000 bpd Yulong refinery.
As Chinese purchases ease, stock draws may emerge despite a year-long trend of inventory builds.
Market analysts predict that Brent’s backwardation could continue to expand as traders respond to tight prompt availability.
Medium sour crude premiums in the Middle East have climbed rapidly and show potential for further gains, with Indian refiners expected to turn to Iraqi Basrah Medium to replace lost Russian barrels.
The Brent-Dubai swap has strengthened, keeping Atlantic Basin crude arbitrage to Asia open.
OPEC members signaled they will discuss potential measures to offset Russian export losses when they convene early next month.
Companies now on the US Specially Designated Nationals and Blocked Persons (SDN) list account for about 7 million bpd of Russia’s crude and condensate production — approximately two-thirds of total output — and around 4 million bpd, representing 80 per cent of the country’s crude exports.
