The one factor that was holding up oil prices in the recent past was the strife in West Asia. The Israel Hamas war had led to the Houthi Rebels (Iran backed) literally blocking the route from Red Sea to the Suez Canal. That put pressure on oil prices as ships had to take the route through the Horn of Africa, leading to a spike in freight costs and insurance cost. This had kept oil prices under pressure, although the demand from China was under pressure due to the slowdown. 

One reason for the spike in the oil price was the positive signals coming from US economy. The latest final estimate of Q3 growth showed GDP growing at well above 3.1%. This month, we will start getting the Q4 growth and the estimate for growth in the full year 2024. Most likely, it would be sharply better than what was originally expected, and that is likely to be a boost for oil demand and oil prices. The signals are also very positive if you look at the revival in tech spending among US corporates. Revival is also seen in other EU economies and in parts in Japan. The expected rise in oil demand is a factor driving oil prices. 1ED

Towards the sunset months of the Joe Biden administration, he tightened the screws on Russian sanctions. Now, the US not only sanctions the Russian oil companies that export the oil, but are also sanctioning the banks that fund the oil trade as well as the ocean tankers that carry such sanctioned oil from one place to the other. That substantially widens the scope of sanctions and it now becomes a lot tougher for India and China to buy Russian oil. In Dec-24, China accounted for 47% of Russian oil exports and India accounted for 37%. Turkey is the only other key importer. Experts believe that oil refiners may get a lot more wary on oil tanker sanctions. 

In reality, stringent oil sanctions on Russia may be impractical. Here is why. Russia accounts for 12% of global oil output and 10% oil exports. That is not a gap that can be filled up by anybody. The US and the rest of the world will require India and China to buy Russian oil in large quantities and even sell the refined oil across the world. That is the only way to keep a balance in the oil market globally. Otherwise, we could have a sharp spike in oil prices, as we saw in early 2022 due to the huge gap between demand and supply. The best that the US can do is to just turn a blind eye to China and India importing oil from Russia. That is the best option!