Russia plans to cut oil production in March by 500,000 barrels per day in response to Western price curbs, Deputy Prime Minister Alexander Novak said, Bloomberg reports.
Russia has repeatedly hinted at a retaliatory output cut, equivalent to about 5 percent of what the country produced in January, since the European Union and G7 began discussing capping Russian export prices. The move threatens to renew turmoil in the oil market, which has otherwise taken lightly EU bans on Russian oil imports by sea.
Crude oil prices jumped on the news, with Brent paring earlier losses to rise 2 percent to $86.50 a barrel by 8:50 a.m. in London.
“Russia considers the mechanism to limit the prices of Russian oil and oil products to be an interference in market relations and a continuation of the destructive energy policy of the collective West,” Novak said in a statement on Friday. The production cut in March will ensure a “restoration of market relations”.
Moscow’s move deepens a 2 million barrel per day production cut announced late last year by OPEC+, which Russia co-leads with Saudi Arabia. At a committee meeting earlier this month, group ministers saw no need to change their production cap, which is in place until the end of 2023.
After the imposition of EU import bans and the price cap, “most observers expected some output loss and Moscow may simply be trying to present the mandatory cut as a voluntary political choice,” said Bob McNally, president of Rapidan Energy Group and a former employee of The White House. “I doubt that Russia’s OPEC+ partners were surprised, and I do not expect that the supply cuts will change their political position not to change production.”
At the moment, Russia is able to sell its quantities of oil on foreign markets, but is unwilling to adhere to the price restrictions imposed by Western countries, Novak said. “In making further decisions, we will act on the basis of how the market situation develops,” he was quoted as saying by Bloomberg TV Bulgaria.
Moscow’s revenue from oil sales has taken a hit in recent months. The biggest factor behind this is the drop since June of about $40 per barrel in Brent crude oil. The discount at which Urals crude – Russia’s main export grade – is trading against the international benchmark has also widened as an EU import ban and G7 price caps forced the country to seek new markets and alternative delivery methods .
However, Russian production has been surprisingly resilient. After hitting a post-invasion low of 10.05 million bpd in April, Russian oil production has rebounded to around 10.9 million bpd at the end of 2022. It remained close to that level in January , although the European Union’s ban on importing almost all of Russia’s oil by sea came into effect on December 5.
