MOSCOW (Reuters) — Russia announced Friday that will cut oil production by 500,000 barrels per day next month after Western countries capped the price of its crude over its action in 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,’” Deputy Prime Minister Alexander Novak said in remarks carried by Russian news agencies.
Analysts have said one possible Russian response to the cap would be to slash production to try to raise oil prices, which could eventually flow through to higher gasoline prices at the pump as less oil makes it to the global market. International benchmark Brent rose 2.2% to $86.42 a barrel on Friday.
A group of big seven democracies has imposed a price cap of $60 a barrel on Russian oil shipped to non-Western countries. Keeping the flow flowing, but limiting the financial interests of Russia that can be used to pay for campaigns against Ukraine.
The cap will be enforced by preventing Western companies, which primarily control shipping and insurance services, from moving oil prices above the cap.
Russia has said it will not sell oil to countries that adhere to the cap, but this is debatable as Russian oil has recently traded below the cap price. But the cap, the concomitant European Union embargo on most Russian oil, and the drop in demand for crude oil have allowed customers in India, Turkey and China to rush for deep discounts on Russian oil.
The impact of the 500,000 bbl/d cut remains an open question as the slowing global economy reduces demand for oil.
His OPEC+ alliance of oil producers, including Russia, said in October that he had announced a production cut of 2 million barrels a day to try to boost oil prices, but by December it was below $80 a barrel.
When asked if Russia had consulted with OPEC+ members about the new Russian output cuts, Russian government spokesman Dmitry Peskov said he was “with some OPEC+ members” before the move was announced. We talked,” he said. He declined to provide details. However, Novak later claimed in a statement that Moscow acted without consulting anyone.
“This is a voluntary cut. According to Russian media, the deputy prime minister had not discussed it with anyone.
Simone Tagliapietra, an energy policy expert at Brussels think tank Bruegel, said the new cuts “demonstrate Russia’s potential move to weaponize its oil supply after last year’s failed attempt to weaponize natural gas. It could be an early sign,” he said.
However, achieving that is because it is easier to find alternative oil supplies traded via tankers that traverse the globe than to replace the natural gas that was mainly transported by pipeline before the war. It may be difficult.
