NEW YORK — Oil prices surged around 5% to a two-week high on Thursday after the U.S. imposed sanctions on major Russian suppliers Rosneft and Lukoil over Russia’s war in Ukraine.

Sanctions against Russia could reduce the supply of oil available to global markets as Russia was the world’s second-biggest crude producer in 2024 after the U.S., according to U.S. energy data.

Brent futures rose $2.91, or 4.7%, to $65.50 a barrel at 10:51 a.m. EDT (1451 GMT), while U.S. West Texas Intermediate (WTI) crude rose $2.89, or 4.9%, to $61.39.

That put Brent on track for its highest close since October 8 and WTI on track for its highest close since October 9.

In addition to soaring crude prices, U.S. diesel futures jumped over 5%, boosting the diesel crack spread to its highest since February 2024. Crack spreads measure refining profit margins.

Multiple trade sources told Reuters that Chinese state oil majors have suspended purchases of seaborne Russian oil from the two companies now under U.S. sanctions, providing a further boost to prices.

However, prices pared some gains after the Kuwaiti oil minister said that the OPEC group would be ready to offset any shortage in the market by rolling back output cuts.

The U.S. sanctions mean refineries in China and India, major buyers of Russian oil, will need to seek alternative suppliers to avoid exclusion from the Western banking system, said Saxo Bank analyst Ole Hansen.

The U.S. said it was prepared to take further action as it called on Moscow to agree immediately to a ceasefire in Ukraine.

More Sanctions

Britain sanctioned Rosneft and Lukoil last week and EU countries have approved a 19th package of sanctions against Russia that includes a ban on imports of Russian LNG.

The EU also added two Chinese refiners with combined capacity of 600,000 barrels per day (bpd) as well as Chinaoil Hong Kong, a trading arm of PetroChina, to its Russia sanctions list, its Official Journal showed on Thursday.

The impact of sanctions on oil markets will depend on how India reacts and if Russia finds alternative buyers, said UBS analyst Giovanni Staunovo.

India became the largest buyer of discounted seaborne Russian crude in the aftermath of Moscow’s war in Ukraine.

Indian refiners are likely to sharply curtail imports of Russian oil due to the new sanctions, industry sources said on Thursday.

Privately owned Reliance Industries, the top Indian buyer of Russian crude, plans to reduce or halt such imports completely, according to two sources familiar with the matter.

But there remains some scepticism in the market about whether the U.S. sanctions would result in a fundamental shift in supply and demand.

“So far, almost all the sanctions against Russia for the past 3 1/2 years have mostly failed to dent either the volumes produced by the country or the oil revenues,” said Rystad Energy analyst Claudio Galimberti.

Oversupply concerns following OPEC+ production increases capped crude’s gains on Thursday. UBS expects Brent to remain between $60-$70. OPEC+ includes the Organization of the Petroleum Exporting Countries and allies like Russia.

On the demand side, U.S. crude oil, gasoline and distillate inventories fell last week as refining activity and demand strengthened, the Energy Information Administration said on Wednesday.

Separately, Chinese Vice Premier He Lifeng is set to meet U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer from Friday, as the world’s two largest economies try to ease an unexpected flare-up in tension ahead of a key leaders’ summit.

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(Reporting by Scott DiSavino in New York and Enes Tunagur in London, Katya Golubkova in Tokyo, additional reporting by Seher Dareen in London; Editing by Kim Coghill, Elaine Hardcastle)