Russia Slashes Oil Production Amid Western Sanctions
Russia has announced that it will cut its oil production by around 500,000 barrels per day, or about 5%, next month in response to Western sanctions over the war in Ukraine. The move is expected to push up crude prices and affect the Kremlin's ability to finance its war machine.
The G7 countries and the European Union introduced price caps on Russian oil and petroleum products in December to limit the funds that its sale would bring to Russia. In response, the Kremlin said it would not sell oil to any country that was participating in the price cap plan.
On Friday, Deputy Prime Minister Alexander Novak said the country plans to cut March production by 500,000 barrels per day in order to “restore market relations.” Following the announcement, energy stocks moved higher as oil prices advanced on the news, with Exxon Mobil stock retaking a buy point.
Traders in oil had previously cautioned that Russia was likely to reduce output in an effort to instigate worldwide safety of supply worries and push up prices. The drop in output is the equivalent of about 5% of January output and is a sign that the sanctions fashioned by the Biden administration, the G7, and their European allies are working.
Russian oil export revenues are expected to take a major hit this year, according to a new Energy Intelligence forecast. With lower benchmark oil prices and heavy discounting to sell displaced volumes, the value of Russian oil exports is forecasted to fall sharply by $67 billion to $169 billion this year.
Russia’s vital fossil fuel income has taken a hit as a result of the sanctions, as buyers in Asia and elsewhere leverage the price caps to negotiate lower prices for Russian crude oil. While the restrictions have not had a major impact on Russian crude oil production, the 500,000 b/d cut amounts to about 5% of Russia's January production, and is a sign that the sanctions are beginning to have an effect.
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