UBS is flagging the prospect of volatility in the oil market as the United States ramps up pressure on countries still buying Russian crude, but the bank sees any price spikes as likely to be short-lived thanks to spare capacity and a looming surplus.
With an 8 August deadline set by President Trump for a Ukraine ceasefire, the US has vowed to penalise buyers of Russian energy, focusing on India and China, and threatening fresh sanctions on shadow fleets that help Russia move oil.
As things stand, Russia exports about 5 million barrels per day of crude and over 2 million barrels per day of refined products, making up more than 7% of the world’s oil supply.
Any meaningful disruption to Russian flows could have a material impact, UBS warns, as seen in the aftermath of the 2022 invasion. However, for now, only part of these flows appear to be at risk.
India is standing its ground, despite a new 25% US tariff on Indian exports aimed at punishing the country for its Russian oil purchases.
Indian authorities have dismissed the tariff as “unjustified and unreasonable”, and refiners are likely to find it difficult and costly to switch away from Russian Urals crude, which currently trades at a $9 discount to Brent.
Russian oil now makes up about a third of India’s crude imports, and, according to UBS, a full replacement “would be technically challenging and economically unviable due to the ongoing tightness in the heavy crude market”.
China, the second key importer, also looks unlikely to scale back. The country takes around 1 million barrels per day of Russian crude by sea and another 800,000 barrels per day via pipeline.
UBS sees little chance of China reducing imports unless incentivised, and notes that China could even increase its share if India is forced to cut back.
The Swiss bank says the market has only partially priced in the risk of disruption.
If India were to stop buying Russian oil entirely, UBS estimates about half of those volumes could be redirected, with a near-term supply loss of up to 1 million barrels per day.
That scenario could lift Brent into the mid-$70s per barrel, compared to a base case of $65. If more countries are hit by sanctions, prices could go higher still.
Even so, the bank expects any rally to be checked by the underlying surplus building in the oil market, with UBS forecasting a surplus of 0.6 million barrels per day in the third quarter, rising to 2.3 million by early 2026.
OPEC, excluding Iran, also retains over 4 million barrels per day of spare capacity that could be tapped if needed, offering a “safety valve” to cap prices and dampen volatility.
In afternoon trading, Brent crude was up 0.7% at $66.30.