Oil prices surge as Trump hits Russian crude with sanctions

NEW YORK: Oil prices jumped more than five per cent on Thursday after US President Donald Trump targeted Russia's key oil industry with new sanctions in a bid to end the war in Ukraine.

The surge in crude prices came as major US equity indices rebounded from the prior day's pullback after the White House confirmed a plan for Trump to meet Chinese leader Xi Jinping next week to discuss trade.

Trump on Wednesday announced new sanctions against Russia's two largest oil companies, Rosneft and Lukoil, saying his peace talks with President Vladimir Putin were not going "anywhere".

The move was joined by another round of punishment by the European Union as part of attempts to pressure Moscow to end its three-and-a-half-year invasion of Ukraine.

"These new sanctions are likely to have a real impact," said Arne Lohmann Rasmussen, an analyst at Global Risk Management.

According to industry analysts, the two companies account for just over half of Russia's oil output, and both also produce natural gas.

Analysts at Capital Economics said the move "could be a big enough shock to flip the global oil market into a deficit next year," although they said the impact depends on the effectiveness of enforcement measures.

Russia's foreign ministry warned that the sanctions risked jeopardising diplomatic efforts to end the Ukraine war, and that it had developed a "strong immunity" to them.

Trump had resisted imposing new restrictions against Moscow for months, but his patience snapped after plans for a new summit with Putin in Budapest collapsed.

He had already claimed that India had agreed to cut its Russian oil purchases as part of a US trade deal, something New Delhi has not confirmed.

Bloomberg on Thursday cited unnamed Indian refinery sources as saying flows of Russian crude were expected to plunge almost to zero as a result of the US sanctions.

"As Rosneft and Lukoil produce around four million barrels per day between them, if India were to reduce its purchases, that would severely hamper Russia's ability to fund its war," said Trade Nation analyst David Morrison.

Trump in August raised tariffs on Indian exports to the United States to 50 per cent, with Trump's aides accusing India of fuelling Russia's war in Ukraine.

Major stock markets mostly rose as traders assessed US-China trade prospects and another batch of mixed company earnings.

Trump is scheduled to embark on a major trip to Asia this week, his first visit to the region since he returned to the White House.

The highlight will be his talks with Xi in South Korea, which Trump's spokeswoman confirmed would take place on Oct 30 on the sidelines of an Asia-Pacific Economic Cooperation summit.

Trump had previously threatened to scrap the meeting amid a flare-up in the trade war between Washington and Beijing.

Gold, seen as a safe haven, recovered from recent heavy selling to rise more than one per cent to around US$4,100 an ounce, though still well below the record high above US$4,381 touched earlier this week.

Markets are looking forward to Friday's US consumer price data, which will be released despite a government shutdown. The figure, closely watched for its implications for US monetary policy, is "always important but it's even bigger this time because there's no other data," said FHN Financial's Chris Low.

Read More: Here