Russia Cuts Oil Production In Response to Western Price Caps

oil exports

Russia declared on Friday an oil production cut of 500,000 bpd beginning next month; this comes after western countries placed a cap on oil prices as sanctions for Russia’s actions towards Ukraine.

“As of today, we fully sell all our crude output, but as we stated before, we will not sell oil to those who directly or indirectly adhere to the ‘price ceiling,’” said Deputy Prime Minister Alexander Novak.

“In connection with that, Russia will voluntarily cut production by 500,000 barrels a day. It will help restore market-style relations,” he added.

Analysts have speculated that Russia’s response to the cap would be to reduce production to boost oil prices, which might lead to increased gas costs as less oil reaches the global market.

On Friday, the International benchmark Brent crude increased by 2.2%, to US$86.42 per barrel.

Russian oil exported to non-western countries is restricted at US$60 per barrel by the Group of Seven democracies (G7). The goal is to maintain oil exports to the market and avoid the price increases experienced last year, while reducing the income that Russia may use to fund its military campaign in Ukraine.

As the global economy slows, the demand for oil decreases, leaving the impact of a cut of 500,000 barrels per day uncertain.

With an announcement in October to reduce production by 2 million barrels per day, the OPEC+ alliance—a group of oil producers that includes Russia—attempted to increase oil prices, but prices dropped below $80 per barrel last December.

Dmitry Peskov, a spokesman for the Russian government, stated, “there had been conversations with some members of the OPEC+” before Moscow announced its new output cut. He remained silent about specific details.

Later, Novak made a statement insisting that the decision was completely made by Moscow.

“It’s a voluntary cut; there have been no consultations with anyone regarding it,” said the deputy prime minister.

Gazprom, a Russian export company, has shut off most natural gas shipments to Europe, claiming technical difficulties and the rejection of some clients to pay in Russian currency. European leaders have claimed this is payback for their support of Ukraine.

Original source material for this article taken from here

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