Oil prices inch upwards as Trump warns of higher tariffs on buyers of Russian oil - Rystad Energy’s Oil Market Update

Oil prices inched upwards near a five-week high of $74.90 per barrel as the Trump administration warned of higher tariffs ranging from 25% to 50% for buyers of Russian oil.

This comes in response to an expected lack of progress on the Russia-Ukraine ceasefire and truce. The market is still considering how to digest these newly proposed tariffs and how they could impact peace talks.

The unwinding of OPEC+’s cuts has somewhat mitigated the reduced flow threat as OPEC+ spare capacity exists above 5 million barrels per day, allowing OPEC+ a lever to manage prices.

While fewer drone attacks will support a recovery in refinery runs, crude flows will remain restricted to select countries and are unlikely to resume to Europe.

India imported 35% and China imported 44% of total Russian crude exports in 2024, as the two nations have snapped up the discounted crudes and won the refinery margin game since the beginning of the invasion.

The market’s response has been fairly muted as participants partially consider this as a mechanism to accelerate the ceasefire and ending the war.

Should these tariffs be implemented, there could be drops in Russian flows to its largest consumers, tightening the market and forcing some action from OPEC+ to assume market stability.

In this case, China and India would seek more Middle Eastern medium sour barrels e.g. Kuwait Export, Al Shaheen and Saudi grades in the spot and term markets, supporting Dubai and widening the Brent-Dubai spread, which could also pull more Atlantic Basin barrels towards the East.

If tariffs are actualized, there could be some backpressure on Russian production as exports could decline and refinery runs remain at stable low rates.

If refinery runs extend beyond the current range, this would allow for more product exports as the middle distillate demand growth between March and August is tremendous owing to summer travel.

The West’s loss of Russian products has largely been the gain for North Africa (200,000 bpd), Brazil (200,000 bpd), China (300,000 bpd), India (200,000 bpd), Saudi Arabia (100,000 bpd) and the UAE (100,000 bpd).

The possibility of tariffs on buyers on Russian products would result in both production and refining being severely impacted.

If the peace agreement materializes and the sanctions on Russia lift, there could be reason to believe that Russia's oil supply will grow, and market dynamics will shift once more.

In the immediate short term, OPEC+ production agreements limit Russian production upside, with a growth of 400,000 bpd emerging by 4Q26. Most of this will be medium-sour Urals, which would loosen sour tightness.

The destination of crude exports remains a key factor, as our current base case and balance assume that sanctions will continue as directed.

However, should tariffs lift, there could be an increase in flows to Turkey, Japan and Korea, with the latter two nations adhering to the current US and G7 sanctions.

The loss of medium sour barrels from Mexican and Canadian tariffs from the US refining system require a vacuum to be filled in USGC refiners’ slates, which would add upside to Dubai and somewhat tighten the sour market.

Driving season is almost upon us, pushing gasoline demand up.

Out of all current US grades showing supply upside, light sweet WTI is the only grade showing growth, of which all incremental production is all exported as it is not suitable for domestic consumption.

It is unlikely for Russian barrels to reenter the European system as the US has captured Russia’s previous market share in Europe for crude, products and gas and is unlikely to release the stronghold it has.

A dynamic stage has been set, where tariffs, sanctions and trade wars all provide volatility to OPEC+’s decision to unwind cuts this month.

We see prices remaining in the narrow range of $70-$80 as higher prices tempt non-compliance and demand implications.

How the Russian ceasefire and crude flows change is an important milestone to watch ahead.