Oil Jumps 2% as Russia Announces Production Cut

February 11, 2023
Nigerian Oil Industry

By Adedapo Adesanya

Oil rose more than 2 per cent on Friday as Russia announced plans to reduce crude production next month after the West imposed price caps on the country’s crude and fuel.

Brent crude futures rose by $1.89 or 2.2 per cent to $86.39 a barrel, while the US West Texas Intermediate crude futures (WTI) were up by $1.66 or 2.1 per cent to $79.72 a barrel.

Brent posted a weekly gain of 8.1 per cent, while WTI gained 8.6 per cent.

Russia will cut crude oil production by half a million barrels per day starting in March, a little over two months after the world’s major economies imposed a price cap on the country’s seaborne exports.

“We will not sell oil to those who directly or indirectly adhere to the principles of the price ceiling,” Russian Deputy Prime Minister Alexander Novak said in a statement. “In relation to this, Russia will voluntarily reduce production by 500,000 barrels per day in March. This will contribute to the restoration of market relations.”

The cut is equivalent to about 5 per cent of Russian oil output.

Last year, the European Union (EU) agreed to phase out all seaborne imports of Russian crude oil within the following six months as part of unprecedented Western sanctions aimed at reducing Russia’s ability to fund its war in Ukraine.

The drop in the supply of Russian oil will mean more competition for barrels from other sources, such as the Middle East, that Europe, the United Kingdom and other Western countries now need.

The production cut indicates that the European bloc’s recent price cap and ban on Russian oil products, which came into effect on February 5, have had some impact.

Russia’s output last year defied predictions of a decline, but its oil sales will prove more difficult in the face of the new sanctions.

Prices were pressured due to weak demand data from China and recession fears in the United States. China’s Producer Price Index (PPI) was down 0.8 per cent from a year earlier, extending the 0.7 per cent drop the prior month, even though manufacturing activity returned to growth in January.

Amid this, investment bank Goldman Sachs lowered its Brent 2023 price forecast to $92 a barrel from $98 and its 2024 price forecast to $100 from $105.

The Organisation of the Petroleum Exporting Countries (OPEC) is also confident that oil may resume its rally in 2023 as Chinese demand recovers after COVID curbs were scrapped and lack of investment limits growth in supply, with Reuters reporting that a growing number see a possible return to $100 a barrel.

Top oil producer, the US added the most oil rigs in a week since June. The total oil and gas rig count, an early indicator of future output, rose two to 761 in the week to February 10.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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