The oil industry's boom-bust cycle is self-perpetuating. Low prices cause companies to slash investment and lead to a talent drain as workers leave the volatile sector. This underinvestment, combined with natural production declines, inevitably leads to tighter markets and price spikes years later.

Despite new US sanctions on Russian oil producers, Goldman Sachs remains bearish, forecasting a decline. They argue that spare capacity from OPEC, exemptions for buyers, and the reorganization of trade networks will mitigate any supply disruption, preventing a sustained price spike and leading to lower prices by 2026.

Sanctions on major Russian oil companies don't halt exports but instead push them into opaque channels. Russia uses independent traders and restructured ownership to create "unknown" cargos, removing sanctioned company names from documents. This model, proven with smaller firms, maintains export volumes while obscuring the oil's origin.

Russia has dramatically shifted its oil trade away from the U.S. dollar, with only 5% of exports now settled in USD, down from 55% in 2022. While this circumvents direct financial sanctions, Russia remains vulnerable as key logistics like freight and insurance are still dollar-linked, increasing costs and complexity.

Despite market fears over Iran and Russian sanctions, J.P. Morgan believes no real supply disruption will occur. The White House's focus on midterm elections will prevent escalations that impact oil supply, and Russia can easily sell its crude at a discount, leading to a surplus.

Indian refiners are likely to reduce direct purchases from sanctioned Russian entities like Rosneft. This is driven less by the sanctions themselves and more by the desire to protect their reputation and maintain access to the global financial system. The precedent set with Iran, where official imports dropped to zero, suggests a similar pattern.

The primary impact of U.S. sanctions on Russian oil is not a reduction in supply but a compression of profit margins. Russia is forced to offer deeper discounts, estimated at $3-$5 per barrel below pre-sanction levels, to compensate buyers for increased logistical and financial risks, ensuring export flows remain stable.

A peaceful resolution in Ukraine would likely be bullish for oil. Russia would need to repair its refineries, increasing its domestic demand for crude oil. This internal consumption would reduce the amount of crude available for export, tightening the global market and pushing prices up.

Forecasters often miss that OPEC+ increases production based on demand for its own oil, not just overall global demand. Sanctions on rivals like Russia and Iran can boost demand for OPEC+ crude, prompting them to unwind cuts even when global demand growth seems weak.