On Friday, oil rose 2%, as the Kremlin announced it would be reducing crude production in March in retaliation for Western attempts to impose price caps on Russian energy sales.
Brent crude futures rose 2% tp $86.21 per barrel as US West Texas Intermediate (WTI) rose 2% to $79.63. Both contracts looked set to close the week out up 10%.
Russian Deputy Prime Minister Aleksandr Novak announced earlier Friday that the Kremlin would reduce its monthly production in March by 500,000 barrels per day, as it terminates deliveries to nations which have chosen to comply with the West’s price-cap regimes.
Novak noted the production cuts would help restore the balance in markets which was upset by what he called the “illegal” price caps.
On February 5th, the G7 and EU nations put into effect a price cap on refined petroleum products which set a price ceiling of $100 per barrel for highly refined products such as diesel and gasoline from Russia, and a $45 per barrel price ceiling for less refined products, such as industrial fuel oil.
Fuel exports priced over these limits would be barred from insurance, brokerage, and other shipping services supplied by companies based in Western nations. The caps on refined products were additional sanctions added on to an existing price cap for crude oil sales set at $60 per barrel.
Since the G7 nations and the EU began raising the possibility of price caps on Russian energy products, Moscow has warned that they could cut their production output in response. Economists note the production cuts could generate volatility in the oil markets which would drive prices higher and exacerbate other problems in the global economy from inflation, to shrinking consumer demand and economic growth, to cost of living crises in various countries.
Giovanni Staunovo, a UBS Strategist, said in a Friday note to clients that, “Lower Russian production together with China’s reopening should tighten the oil market further over the coming quarters.”
Other analysts noted that the Kremlin’s production cuts come at a particularly troubling time, following the two-million barrel-per-day production cuts announced by the OPEC+ alliance late last year.
