Oil Prices Surge After Russia Announces Production Cut in Response to Sanctions
Oil prices rose on February 10 after the Kremlin announced it will reduce its crude oil production by 500,000 barrels per day from the start of March, in response to Western sanctions and the G7 price caps on Russian oil. Russia is the world’s second-largest exporter of crude oil and its planned cuts sent the price of Brent crude, the international benchmark for oil prices, up by 2.2% to $86 per barrel.
The European Union and the Group of Seven (G7) have implemented new sanctions, most notably, a $60 price cap, to restrict the funds that Russian oil sales can bring to the country. In response, Russian Deputy Prime Minister Alexander Novak said, “As of today, we are fully selling the entire volume of oil produced, however, as stated earlier, we will not sell oil to those who directly or indirectly adhere to the principles of the ‘price ceiling’.”
The European Union had previously banned imports of crude oil from Russia in December, but allowed the sale of refined products. This week, the bloc implemented a more comprehensive ban, prohibiting imports of anything produced from Russian crude oil.
Richard Bronze, head of geopolitics at Energy Aspects, a consultancy in London, said, “The new EU ban will apply to anything produced from Russian crude oil.”
The sanctions have had an effect on Moscow’s oil revenue, as buyers in Asia and elsewhere are leveraging the price caps to negotiate lower prices for Russian crude oil.
In an attempt to increase prices and defy the price caps, Russia’s Deputy Prime Minister Alexander Novak said, “In this regard, Russia will voluntarily reduce production by 500,000 barrels per day in March. This will help restore market relations.”
Market analysts report that Europe imported approximately 700,000 barrels of Russian diesel per day, accounting for around half of its total diesel imports.
The sanctions will also create a supply gap in the West, creating price incentives to draw barrels from the East of Suez region, according to Wang Zhuwei, S&P Global Commodity Insights’ Asia oil analytics manager.
In a twist, the ban on Russian oil products could also boost its sales of crude to China and India.
0. “Oil Jumps as Russia Says It Will Cut Output in March” Barron's, 10 Feb. 2023, https://www.barrons.com/articles/brent-wti-crude-oil-price-russia-cut-output-1cefe1f7
1. “Russia to cut oil production over price caps” BBC, 10 Feb. 2023, https://www.bbc.co.uk/news/business-64594715
2. “Russia Vows Oil Production Cuts, Compounding Natural Gas Retaliation Against Europe” Natural Gas Intelligence, 10 Feb. 2023, https://www.naturalgasintel.com/russia-vows-oil-production-cuts-compounding-natural-gas-retaliation-against-europe
3. “Russia moves to fight sanctions and boost oil prices” WUSF Public Media, 10 Feb. 2023, https://wusfnews.wusf.usf.edu/2023-02-10/russia-moves-to-fight-sanctions-and-boost-oil-prices
4. “EU ban on Russian oil imports comes into force” Euronews, 6 Feb. 2023, https://www.euronews.com/my-europe/2023/02/06/eu-ban-on-russian-oil-imports-comes-into-force-as-west-steps-up-measures-against-moscow
5. “Europe bans Russian diesel and other oil products” NPR, 3 Feb. 2023, https://www.npr.org/2023/02/03/1153833640/europe-russian-oil-products-ban
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