Crude’s cold shoulder: EU sanctions land with a thud, but middle distillates may feel the heat

Oil barely blinked at the EU’s latest attempt to tighten the screws on Russian energy. The 18th sanctions package—headlined by a lower crude price cap and a wider net on Russia’s shadow fleet—landed with all the force of a damp matchstick. Brent and WTI yawned in response, a sign that traders have long stopped pricing in geopolitical theater without teeth.

The headline number—the cut in the oil price cap from $60 to $47.60—is cosmetic at best. Without G-7 alignment, especially from the U.S., the new cap is more PR than price anchor. Russia’s ghost fleet is still sailing, sanctions or not, and the market knows it. Over 440 vessels now fall under the EU’s blacklist, but enforcement remains dubious at best.

What might matter—eventually—is the ban on refined product imports processed from Russian crude in third countries. That’s where the EU could start squeezing the real flow of molecules. India and Turkey, now regular customers of discounted Russian barrels, are major diesel suppliers to Europe. Together, they make up about 15% of EU’s seaborne diesel imports. If Brussels finds a way to actually monitor and enforce the origin of those refined products—big if—then middle distillate markets in Europe could tighten fast. The diesel crack is already elevated, and this could add fuel to the fire.

So far, though, traders are calling the bluff. The physical market knows that tracing the origin of crude through refinery stacks is like trying to unbake a cake. Enforcement would require surveillance levels most regulators simply don’t have.

Meanwhile, in the U.S., the oil patch continues its slow contraction. The rig count dropped for the 12th week in a row—down another two rigs to 422—bringing the cumulative decline to 53. Production isn’t falling off a cliff, but the trend tells you everything about producer discipline in a $70–$80 world. Capital budgets are tighter, shale CEOs are more shareholder-friendly than ever, and the rig slide reflects it.

Specs, however, are leaning the other way. Net long positions in ICE Brent jumped by over 16,000 lots last week, driven by fresh longs. ICE gasoil net length also continues to rise, now at its highest level since July 2024. Traders are clearly positioning for refined product tightness—not because of the sanctions per se, but because the structural tightness in middle distillates has become impossible to ignore.

For now, oil’s shrug at the latest EU sanctions tells you what you need to know: headline risk isn’t enough anymore. But watch the diesel market. That’s where the policy friction could still spark a price fire.