Russia announced Friday it will slash crude oil output by five percent next month after Western countries imposed a price cap over its invasion of Ukraine.
International crude prices surged after Deputy Prime Minister Alexander Novak said that Russia would “voluntarily” reduce production by 500,000 barrels per day in March.
“This will help restore market relations,” Novak said, according to Russian news agencies, adding that the decision was taken by Moscow unilaterally.
He said the price cap was an “interference in the market and a continuation of the destructive energy policy of the countries of the collective West”.
The West has imposed a slew of sanctions against Russia since the nearly year-old conflict erupted.
The oil measures aim to strip Russia, one of the world’s top energy producers, of a major source of revenue as the war in Ukraine sent prices soaring last year.
– Declining revenue –
An EU-wide ban on Russian oil products — like diesel, gasoline and jet fuel — came into effect Sunday alongside a Group of Seven price cap on the same items.
There are two price cap levels, $100 per barrel for more expensive fuel like diesel and $45 on lower-quality products such as fuel oil.
That expanded on an EU embargo on seaborne oil deliveries introduced in December — when it also established with G7 partners a $60-dollar-per-barrel cap for exports around the world.
Russia retaliated with a decree banning oil sales to countries and companies that comply with the price ceiling.
European Commission president Ursula von der Leyen estimates that the oil price cap costs Moscow 160 million euros ($170 million) per day in lost revenue.
“Until recently, Russia had been able to offset the discontinued oil shipments to the West by selling more to Asia, especially China and India,” said Commerzbank analyst Carsten Fritsch.
“However, the price caps have resulted in Russia only being able to sell its oil at significant discounts on international oil prices, leading to a marked decline in export revenues,” he added.
– OPEC talks –
News of Russia’s cut to output gave strength to world oil prices Friday.
The international benchmark, Brent North Sea crude, and the New York contract WTI, which had been down earlier in the day, jumped by more than two percent.
Brent was 1.9 percent higher at $86.07 in afternoon deals in Europe while WTI rose 1.7 percent to $79.37.
Oil prices had already gained support in recent weeks as the economy of top consumer China reopens following the end of almost three years of severe Covid restrictions.
Russia is part of the 23-nation OPEC+ crude cartel — which includes Saudi Arabia — that already agreed in October to reduce output by two million barrels per day until the end of this year.
Kremlin spokesman Dmitry Peskov said there were “conversations with a certain number of OPEC+ members” before Moscow decided on its own production cut on Friday.
“We believe the decision is not completely a voluntary one — despite the official claiming otherwise — as market factors likely forced the Russian side to make this decision,” said UBS bank analyst Giovanni Staunovo.
