By: Karim Hammam
Oil prices declined during Monday's trading, moving away from five-month highs, as investors moved to take profits following US President Donald Trump's decision to exempt Russia from major sanctions and tariffs, a move that could allow for an increase in Russian fuel exports.
Brent crude futures fell by $2.29, or 2.08%, to reach $107.57 a barrel, after hitting its highest level since May at Friday's settlement. US West Texas Intermediate crude also fell $1.95, or 1.92%, to $99.46 a barrel, after reaching its highest level since mid-September at Friday's settlement.
Russia exemption raises supply questions
The US president had signed an executive order exempting Russia from major sanctions and tariffs under the law known as the Graham Act, in response to a request by lawmakers who sought to increase pressure on Moscow over its war in Ukraine. However, US Secretary of State Marco Rubio said the administration will use a period of up to 60 days to assess the economic impact of these sanctions and tariffs on the global economy.
Priyanka Sachdeva, head of market insights at Phillip Nova, viewed Trump's move as another attempt to keep oil prices under control ahead of the US midterm elections. She added that the decision offers little solution to the actual supply crisis in the Strait of Hormuz, where attacks on oil tankers continue.
For his part, Tim Waterer, market analyst at KCM Trade, said that exempting Russia from US sanctions could lead to an increase in Russian fuel exports, but the mixed messages surrounding the decision have created a state of uncertainty in the markets. He added that the markets are unlikely to fully price in a sustained increase in supply before the details and duration of the decision become clear.
Diesel export agreement and Ukrainian concerns
The US move comes following an agreement reached by Trump with Russian President Vladimir Putin to export diesel to the United States and other countries. According to the official announcement, quantities will start at about 2.3 million barrels this month, before rising to about 7.6 million barrels per month. In contrast, Ukrainian President Volodymyr Zelensky said that the US measures will harm his country.
Strait of Hormuz puts pressure on energy supplies
Brent crude had briefly touched the $110 a barrel mark on Friday, for the first time since May, amid escalating tension and security threats in the Middle East, and the concerns they raised regarding the safety of navigation and the tightening of global energy supplies. In a recently issued note, analytics firm Kpler said that intensifying attacks on commercial ships have led to a sharp decline in Gulf crude flows.
