A piece-over rig performs maintenance on an oil well within the Permian Basin oil production area near Wink, Texas August 22, 2018.
Nick Oxford | Reuters
Russia will cut oil output by 500,000 barrels per day in March, Deputy Prime Minister Alexander Novak said on Friday, following Western bans on Moscow’s crude and oil products implemented previously few months.
The announced production decline amounts to roughly 5% of Russia’s latest crude oil output, which Paris-based watchdog the International Energy Agency estimated was down at 9.77 million barrels per day in December.
The Brent contract for April delivery was trading at $86.26 per barrel at 11 a.m. London, jumping by $1.76 a barrel — over 2% — on the news in comparison with Thursday’s close price. The front-month Nymex WTI contract with March expiry was at $79.72 a barrel, also gaining 2% from the previous settlement.
Novak said that the reduction will “help restore market relations,” in accordance with a Google translation of comments reported by state news agency Tass.
He noted that the cut doesn’t apply to gas condensate and might be calculated from actual output levels, not from Russia’s quota under the OPEC+ output agreement. The choice was not made in consultation with the OPEC+ coalition, which Moscow co-chairs.
OPEC+ producers must typically agree consensus on output policy, with members certain to their targets. However the group has previously allowed voluntary gestures that honor the spirit of existing output agreements — on this case, the Russian decline would construct on a previous OPEC+ decision to lower production by a combined 2 million barrels per day, agreed in October last 12 months.
Other OPEC producers facing sanctions, comparable to Venezuela and Iran, have requested and received exemptions from their production quotas. Several OPEC+ delegates previously told CNBC that Russia had to this point signaled no intention to ask for similar accommodations.
The EU implemented bans on seaborne imports of crude oil on Dec. 5 and of oil products this week. Under a program passed by the G-7 wealthiest nations, Western providers may proceed to produce key financial and shipping services to move Russian volumes to non-G7 destinations, provided these fuels are purchased beneath specific price caps.
“As previously stated, we is not going to sell oil to those that directly or not directly adhere to the principles of the ‘price ceiling’,” Novak reiterated on Friday, adding that the worth cap program could lead on to grease and oil products shortages.
“Lower Russian production along with China’s reopening should tighten the oil market further over the approaching quarters,” UBS Strategist Giovanni Staunovo said in a Friday note to clients.
