A paradox is unfolding in the oil market, with prices climbing steadily for four consecutive weeks. According to Reuters, oil prices surged on January 17th, setting the stage for a fourth straight week of gains. The driving force behind this rally is the recent US sanctions on Russian energy exports, which have disrupted supply, pushed spot prices higher, and driven up transportation costs.

As a result, Brent and WTI crude gained 2.5% and 3.6% respectively last week. Specifically, Brent oil futures rose by 0.39% to $81.61 per barrel, while WTI futures added 0.59% to settle at $78.31 per barrel.

Analysts at Fujitomi Securities attribute the surge to concerns over supply disruptions caused by the US sanctions on Russian oil producers and tankers, combined with expectations of a rebound in demand, particularly amid the potential for interest rate cuts by the Federal Reserve. In addition, cold weather conditions in the United States are anticipated to boost fuel demand, further supporting oil prices.

Earlier, the Biden administration announced an expansion of sanctions targeting Russian oil producers and tankers. In this environment, China and India, the largest buyers of Russian crude, are increasingly turning to global markets for alternatives. This is driving up transportation costs, experts note.

Investors are also concerned about potential supply disruptions following Donald Trump’s inauguration. There is a real possibility that his administration could take a tough stance on Iran and Venezuela, two major oil suppliers, further tightening global oil markets.

The oil market has been strongly supported by improved demand forecasts. Furthermore, expectations of further Federal Reserve rate cuts have increased after data showed that inflation in the world's largest economy was easing.

Meanwhile, China's oil refinery throughput fell last year for the first time in two decades, excluding the pandemic-hit year of 2022. However, recent data showed that the Chinese economy grew more than expected in 2024, adding a layer of optimism to the global oil demand outlook.