Oil Rallies on Trump Sanctions. Traders See a Head-Fake.

The Kremlin wall is reflected in a plaque at the entrance of the headquarters of the state-owned oil company Rosneft. (AFP via Getty Images)

Key Points

• Oil prices increased, with Brent crude up 5.9% and WTI up 6.3%.
• President Donald Trump imposed sanctions on Russian oil producers Rosneft and Lukoil, which produce over 5 million barrels daily.
• Previous sanctions by the Biden administration on other Russian oil producers and tankers had little impact on exports.

Oil prices were rallying Thursday after President Donald Trump imposed sanctions on Russian producers Rosneft and Lukoil.

Investors, however, don’t seem to think the price bump will last, and oil stocks were up much less than the commodity. Geopolitics has caused volatile moves in oil this year, but it hasn’t been a great reason to buy oil stocks. Spikes have tended to fade within weeks, if not days.

Brent crude futures, the international benchmark, rose 5.9% to $66.29 a barrel. West Texas Intermediate (WTI ) was up 6.3% to $62.17 a barrel, its largest gain since June.

Created with Highcharts 9.0.1Source: FactSetAs of Oct. 24, 4:15 p.m. ET

Created with Highcharts 9.0.1WTI Crude Price Per BarrelBrent Crude Price Per BarrelOct. 20Oct. 24-2024681012%

Exxon Mobil stock rose just 1.4%, while producer EOG Resources was up 1.9%.

In addition, oil futures expiring in a few months were rising much less than front-month futures, indicating that investors expect the price increase to dissipate. September 2026 futures contracts were up less than 2%. Despite the rebound, oil remains set for a third consecutive monthly loss amid persistent oversupply fears.

One reason that traders are playing it cautious is that it isn’t clear if the sanctions will actually divert a substantial amount of production. The two Russian producers pump more than five million barrels of oil a day, but “the key question is whether these sanctions are enough to deter buyers of Russian oil, specifically China and India,” ING’s Head of Commodities Strategy Warren Patterson wrote.

He warned that the Biden administration imposed similar sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, along with sanctions on a large share of Russia’s shadow fleet of tankers, but “These sanctions had little impact on Russian oil exports.”

In addition, the Trump administration doesn’t want to see oil prices rise too much, because it will soon start to affect gasoline prices and other costs. Just this week, Trump celebrated the fact that average gasoline prices in the U.S. had fallen below $3 a gallon. But on Thursday, wholesale gasoline was trading 3.5% higher and heating oil was up 5.2%.

The price-surge may fade “quickly as loosening fundamentals, and the US political dynamics outweigh the geopolitical risk premium, sending Brent crude oil back toward our $60 per barrel price forecasts,” wrote Citi analyst Francesco Martoccia.

Write to Patrick O’Donnell at patrick.odonnell@barrons.com and AVi Salzman at avi.salzman@barrons.com.