Oil Prices Rise Alongside Geopolitical Risk

According to the authoritative Internet portal Oilprice, “oil prices have finally outgrown the pains of the OPEC+ meeting, with the promised oil production cuts, confirmed for 2025, and potential threat of sanctions, which determine the price of liquid hydrocarbons, now front and center this week,” including new G7 sanctions against Russia’s so-called “shadow tanker fleet,” Chinese concerns about buying Iranian crude with Trump coming into office, and looming nuclear sanctions on Tehran. All these concerns increased the “geopolitical risk” premium to oil prices, lifting Brent to $74 per barrel, the first weekly gain since mid-November.

According to oil analyst Michael Kern, OPEC+ “slowly adapts to new bearish realities” of periodic decline in oil prices. Exporters revised up their global oil demand forecasts for 2024 and 2025 for the fifth consecutive time, estimating demand growth of 1.45 million bpd next year, with the changes driven almost entirely by lower consumption growth in the Middle East.

Kern also points to the fact that the European Union has agreed on the so-called “15th sanctions package” against Russia in connection with the military conflict in Ukraine. The new sanctions mainly target over 30 organizations and 45 tankers for their involvement in facilitating the so-called shadow fleet trade of Russian oil. For his part, President Vladimir Putin extended the ban on exports of oil and oil products from Russia under contracts whose terms follow the G7 oil price ceiling restrictions. The retaliation decree went into effect on February 1, 2023 and has since been extended several times. The action was to end on December 31, 2024, but the current ordinance extends it to June 30, 2025. An oil price ceiling of $60 per barrel was introduced in December 2022 by the G7 countries (the USA, Britain, France, Japan, Italy, Canada, and Germany), as well as the EU and Australia. The ceiling was then extended to petroleum products depending on their type: at $100 per barrel for diesel (sold at a markup over crude oil) and $45 per barrel for fuel oil, sold at a discount. If products are sold above the ceiling, G7 companies cannot provide services that accompany oil transportation, such as insurance.

India’s Top Refiner Signs 10-Year Deal with Russia. India’s largest private refiner Reliance signed the biggest ever crude oil supply deal with Russia’s state oil firm Rosneft, agreeing to buy some 500,000 b/d of Russian oil over the upcoming 10 years, with an option to extend for another 10 years.

ExxonMobil Doubles Down on Oil. US oil major ExxonMobil has boosted its upstream spending from $27-29 billion in 2025 to $28-33 billion in 2026, eyeing a lift in total production to 5.4 million boe/d by 2030 following the Pioneer acquisition, up 18% from current output levels.

Mexico’s Output Plunges Even Deeper. Recent budget cuts are squeezing Mexican oil production to multi-decade lows, with the most recently reported month of October seeing crude output at 1.42 million b/d, as huge arrears to drilling firms are expected to push production to 1.3 million b/d by now.

Canada Wants to Stand Up to Trump. Several Canadian premiers have urged Prime Minister Trudeau to deliver a robust response to Donald Trump’s threat of placing a 25% import tariff on Canadian goods, with Ontario Premier even suggesting exports of both crude and electricity to the US could be halted.

Shell Tries Its Luck with the Black Sea. Despite a relatively tense geopolitical situation in the Black Sea region, UK-based energy major Shell signed a deal to develop an offshore exploration block in Bulgaria, covering more than 4,000 km2 and abutting Turkey’s giant Sakarya gas discovery.

Chinese Battery Producers Move to Europe. The world’s largest EV battery maker CATL signed a $4.3 billion deal with European carmaker Stellantis to build a large-scale lithium iron phosphate (LFP) battery factory at the latter’s Zaragoza plant in northeastern Spain, the Chinese firm’s third plant in Europe.

Austria Terminates Gazprom Supply Deal. Austrian oil firm OMV  terminated its pipeline gas supply contract with Russia’s Gazprom, a symbolic move as Austria was the first Western European country to receive Russian gas in the 1960s, after the two fell out over a $240 million arbitration case.

Asian Demand for Saudi Oil Jumps in January. Following Saudi Aramco’s  consecutive price cuts to formula prices that led to OSPs being at a 4-year low, Chinese refiners ramped up their nominations of Saudi crude to 46 million barrels, up 25% compared to this month’s 36 million barrels.

Europe’s Leading Trading Firm Sheds Refining. Geneva-based trading firm Gunvor has decided to mothball its 75,000 b/d Rotterdam refinery and will operate the site as a trading terminal, citing escalating operational costs amidst high power prices and elevated inflation rates and weak margins.

Tullow Oil Becomes an Acquisition Target. Following the departure of London based oil company Tullow Oil chief executive Rahul Dhir last week, the Africa-focused producer has been in disarray, with upstream peer US Kosmos Energy reportedly weighing an all-share Tullow Oil acquisition, potentially doubling its production.