Why isn't oil rallying on sanctions that could cut oil supply? Because the International Energy Agency (IEA) on Thursday reduced its forecast for the rise in oil demand this year for the third month in a row. European and Asian demand weakness are the main causes. The IEA expects global oil demand to grow by only 0.9 million barrels a day in 2014, down 65,000 barrels a day compared with last month's forecast and lower by 300,000 barrels a day since July.
Furthermore, according to the IEA the Saudis (the only OPEC country willing to cut production) reduced oil production by 330,000 barrels a day in August and are now producing at their lowest level since 2011. However, they are merely matching falling demand and so this cut in supply is not bullish for oil prices.
The Russian story is still very bullish over the longer term and if you look at longer dated oil contracts (December 2018, for example) the oil market is up almost $2 per barrel this week.
So the short term bearish outlook for oil continues, but longer term (2+ years) these Russian sanctions are fairly bullish for oil prices.
Why are US energy stocks down today? Because oil is a global industry with many US oil companies investing in Russian oil production. Russian oil companies also use US oil services companies for exploration and production. Sanctions cut both of these revenue sources.
[ Market Cap Changes today of Energy Sector of US S&P 500 ]