Russia will reduce its oil production in March in response to sanctions decided on its crude oil, its deputy prime minister announced on Friday, causing the price of the black gold to skyrocket.
“Russia will voluntarily reduce its production by 500,000 barrels per day in March,” or about 5% of its daily production, said Alexander Novak, quoted by Russian press agencies.
“We will not sell oil to those who directly or indirectly adhere to the ‘price cap’ principles,” Novak added, referring to Western sanctions.
Since December, Moscow has been affected by the setting of a price cap for its crude oil by the G7, the European Union and Australia. These measures have also been targeting refined petroleum products since early February.
The aim for the sanctioning countries: to reduce as much as possible the oil spills from Moscow, the revenues from which finance its invasion of Ukraine, but without causing a shortage and thus an increase in the price of black gold, which is already very high gold would feed inflation around the world.
Russia is one of the top three crude oil producers alongside the US and Saudi Arabia, making it a key player in the market.
The disruption of Russian gas supplies to Europe following the Kremlin invasion of Ukraine sent energy prices soaring and then inflation, but the oil market is relatively unscathed for now as Europeans reorganized their supplies.
By the time the new sanctions came into force, “Russia had managed to compensate for the loss of its sales to the West with purchases from Asia, especially China and India,” says Carsten Fritsch, an analyst at Commerzbank.
But the new sanctions that came into effect on Sunday relate to Russian refinery products, which were mainly bought in Europe.
And Russian exporters have had no comfort in seeing prices soar as crude prices are trading below where they were a year ago before Russia invaded China amid global recession fears.
However, the announcement of a fall in Russian production gave prices a boost. In London, Brent, the European benchmark for crude oil, rose 2.49% to $86.60 at midday, while the US WTI was up 2.41% to $79.93.
In fact, the decline in Russian production cannot be compensated for by the other major oil-producing countries.
The Organization of Petroleum Exporting Countries and Its Partners (OPEC+), which associates Russia with Saudi Arabia and 21 others, is concerned that crude buyers are on the verge of a recession that would reduce demand and risk an oil surplus in the producer countries decided to cut production by 2 million barrels a day.
According to Russian presidential spokesman Dmitry Peskov, ahead of Moscow’s announcement on Friday, there were “talks with a number of OPEC+ members.”
And delegates from other OPEC+ member countries told Bloomberg agency they would not compensate for the drop in Russian production.
However, not everyone is convinced by the idea that Russia has voluntarily decided to produce less: “We believe that the decision is not entirely voluntary and that market factors are forcing Russia to do so”, which is scrambling for buyers, said UBS analyst Giovanni Staunovo.
In both cases, the consequence remains the same: an increase in prices, which he believes could be exacerbated by the reopening of China and the associated increase in demand.