Oil prices rose by more than 4% on Thursday, extending gains from the previous session, after the U.S. imposed sanctions on major Russian suppliers Rosneft and Lukoil over the Ukraine war.
Brent crude futures were up $2.71, or 4.3%, at $65.30 a barrel at 0841 GMT, while U.S. West Texas Intermediate crude futures were up $2.56, or 4.4%, at $61.06.
Crude prices jumped after the U.S. sanctions were rolled out and refineries in China and India will now need to seek alternative suppliers to avoid exclusion from the Western banking system, according to Saxo Bank analyst Ole Hansen.
The U.S. said it was prepared to take further action as it called on Moscow to agree immediately to a ceasefire in its war in Ukraine.
Britain sanctioned Rosneft and Lukoil last week. Separately, EU countries approved a 19th package of sanctions against Russia for the war that includes a ban on imports of Russian LNG.
Right after the U.S. sanctions were unveiled, Brent and WTI futures rose by more than $2 a barrel, boosted as well by a surprise decline in US stockpiles.
The impact of sanctions on oil markets will depend on how India reacts and if Russia finds alternative buyers, said UBS analyst Giovanni Staunovo.
Indian refiners are expected to sharply curtail imports of Russian oil due to the new sanctions, industry sources said on Thursday. India became the largest buyer of discounted seaborne Russian crude in the aftermath of Moscow's 2022 Ukraine invasion.
Sources said privately-owned Reliance Industries, the top Indian buyer of Russian crude, plans to reduce or halt such imports completely, according to two sources familiar with the matter.
But scepticism in the market about whether the U.S. sanctions would result in a fundamental shift in supply and demand limited gains.
"So far, almost all the sanctions against Russia for the past 3.5 years have mostly failed to dent either the volumes produced by the country or the oil revenues," said Rystad Energy analyst Claudio Galimberti.
Oil prices have fallen over the past month because of oversupply concerns following OPEC+ production increases.
On the demand side, U.S. crude oil, gasoline and distillate inventories fell last week as refining activity and demand strengthened, the Energy Information Administration said on Wednesday.
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