Oil Market Improves as Russia Moves to Tackle Price Cap

By Adedapo Adesanya

The oil market benefited from the response of Russia to the Group of Seven (G7) price cap policy on Russian exports, with Brent rising by $2.94 or 3.6 per cent to $83.92 per barrel and the US West Texas Intermediate (WTI) appreciating by $2.07 or 2.7 per cent to $79.56 a barrel.

According to reports, Russia threatened to cut crude output, and this led the two major crude oil benchmarks to record their biggest weekly gains since October.

Speaking on Friday, Russia’s Deputy Prime Minister, Mr Alexander Novak, said the country may cut oil output by 5 per cent to 7 per cent in early 2023 as it responds to price caps on its crude and refined products and halt sales to the countries that support them.

He also said that despite Europe’s efforts to cut reliance on Russian oil and gas, energy exports from Russia are in demand worldwide, and Moscow has been diversifying its buyers.

Mr Novak said it would be difficult to provide for global economic development without Russian energy and predicted possible gas shortages in Europe, which has introduced restrictions on gas prices, as well as on oil.

Following the invasion of Ukraine by Russia, the European Union, G7 nations, and Australia introduced a $60 per barrel price cap from December 5, in addition to the European Union’s embargo on imports of Russian crude by sea and similar pledges by Britain, Canada, Japan, and the US.

Although it has not yet been formalised, it was gathered that President Vladimir Putin plans to sign a decree on the nation’s reaction to the threshold on Monday or Tuesday, containing unspecified preventive measures.

A supportive weekly report from the Energy Information Administration (EIA) and concerns about the big freeze forcing production shut-ins pushed oil prices higher this week.

This is even as news of better-than-expected Q3 performance in the U.S. has raised the prospect of further interest rate hikes just as fears of an economic slowdown added downward pressure to oil prices.

Swiss bank UBS expects prices could move back above $100 per barrel next year on Russian output cuts and the easing of COVID-related restrictions in China.