Economic and Kinetic Sanctions
Measurable effects from sanctions are now appearing in markets
Major buyers of Russian crude are switching away
Refining profit margins soaring as Russian diesel exports decline
Natural gas futures rally on weather shifts
Sincerely,
David Thompson, CMT
Executive Vice President
Powerhouse
(202) 333-5380
The Matrix
Many of the initial sanctions imposed on Russia by western nations were either opaque or ineffective. Some of this was by design to minimize the economic fallout on nations that support Ukraine. It was difficult for the energy markets to clearly assess changes in supply or buying patterns. This is now changing. Sanction effects, both financial and kinetic, are now showing up in the numbers.
Europe is closing the loophole of importing refined products sourced from Russian crude. For December, Turkish refiners are now sourcing about 125,000 barrels per day (bpd) of crude from Iraq, Brazil, Angola and Kazakhstan instead of Russia.
The government of India has effectively decided that the economic damage from increasing sanctions is greater than the benefit of buying below-market-priced Russian crude oil. State-run refiner Indian Oil has sought pricing on 24 million barrels of oil from the Americas in Q1 2026. That works out to be more than 250,000 bpd. Another Indian refiner sourced 2 million barrels of December supply for Abu Dhabi.
The largest private Indian refiner, Reliance Industries, has stated that it will abide by Western sanctions although it has a contract with Rosneft to buy 500,000 bpd. A key test will be if they seek to re-source those barrels.
China’s response remains the most important test to the newest sanction regime. Several large state-owned refiners have announced they will refrain in the short-term from buying seaborne Russian crude oil. The 900,000 bpd of Russian crude flowing by pipeline directly to PetroChina remains unaffected at present.
Ukrainian long-range strikes against Russian energy assets have been dubbed ‘kinetic’ sanctions. While details of damage to Russian infrastructure can be difficult to verify, the effects of Ukraine’s strategy can be measured in the energy markets. Respected third-party tanker trackers report that exports of Russian refined products in September dropped by 500,000 bpd – to the lowest level in five years. Recently reported refining profit margins for major Western oil companies also support this assessment. Exxon, Chevron, Shell and Total posted a collective 61% increase in refining profits in Q3 of 2025.
While the pundits will continue to debate what the future may hold, POWERHOUSE remains focused on tracking and assessing high quality data. The verifiable declines in the amount of Russian petroleum, especially diesel, reaching the markets is a bullish factor for price. These data points will remain a focus especially as the market starts to turn its attention to Q1 and Q2 of 2026.
Supply/Demand Balances
Supply/demand data in the United States for the week ended October 24, 2025, were released by the Energy Information Administration.
Total commercial stocks of petroleum decreased (⬇) 15.9 million barrels to 1.2687 billion barrels during the week ended October 24th, 2025.
Commercial crude oil supplies in the United States were lower (⬇) by 6.9 million barrels from the previous report week to 416.0 million barrels.
Crude oil inventory changes by PAD District:
PADD 1: Up (⬆) 0.5 million barrels to 8.1 million barrels
PADD 2: Up (⬆) 2.1 million barrels to 103.7 million barrels
PADD 3: Down (⬇) 10.0 million barrels to 234.3 million barrels
PADD 4: Down (⬇) 0.1 million barrels to 23.4 million barrels
PADD 5: Up (⬆) 0.7 million barrels to 44.5 million barrels
Cushing, Oklahoma, inventories were up (⬆) 1.4 million barrels to 22.6 million barrels.
Domestic crude oil production increased (⬆) 15,000 barrels per day from the previous report to 13.644 million barrels per day.
Crude oil imports averaged 5.051 million barrels per day, a daily decrease (⬇) of 867,000 barrels. Exports increased (⬆) 158,000 barrels daily to 4.361 million barrels per day.
Refineries used 86.6% of capacity; a decrease (⬇) of 2.0% from the previous report week.
Crude oil inputs to refineries decreased (⬇) 511,000 barrels daily; there were 15.219 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, decreased (⬇) 373,000 barrels daily to 15.717 million barrels daily.
Total petroleum product inventories decreased (⬇) by 9.1 million barrels from the previous report week, down to 852.7 million barrels.
Total product demand increased (⬆) 1,267,000 barrels daily to 21.281 million barrels per day.
Gasoline stocks decreased (⬇) 5.9 million barrels from the previous report week; total stocks are 210.7 million barrels.
Demand for gasoline increased (⬆) 470,000 barrels per day to 8.924 million barrels per day.
Distillate fuel oil stocks decreased (⬇) 3.4 million barrels from the previous report week; distillate stocks are at 112.2 million barrels. EIA reported national distillate demand at 3.580 million barrels per day during the report week, a decrease (⬇) of 267,000 barrels daily.
Propane stocks rose (⬆) 2.5 million barrels from the previous report to 105.7 million barrels. The report estimated current demand at 964,000 barrels per day, an increase (⬆) of 51,000 barrels daily from the previous report week.
Natural Gas
The very bullish price action of last Thursday and Friday has been attributed to revisions to both the GFS and European weather models, adding 18.4 HDDs and 11.6 HDDs respectively. From a technical analysis perspective, the front-month futures contract has soared into very overbought territory – though the January 2026 contract has not. Should the current pulse of volatility ebb, a pause in the rally or even a pullback could be expected. A convincing break below $3.95 on the front-month contract would shift my view to bearish.
According to the EIA:
Net injections into storage totaled 74 Bcf for the week ended October 24, compared with the five-year (2020–24) average net injections of 67 Bcf and last year’s net injections of 79 Bcf during the same week. Working natural gas stocks totaled 3,882 Bcf, which is 171 Bcf (5%) more than the five-year average and 29
Bcf (1%) more than last year at this time.
The average rate of injections into storage is 13% higher than the five-year average so far in the refill season (April through October). If the rate of injections into storage matched the five-year average of 6.0 Bcf/d for the remainder of the refill season, the total inventory would be 3,924 Bcf on October 31, which is 171 Bcf higher than the five-year average of 3,753 Bcf for that time of year.
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