Russia to cut oil production in response to Western sanctions

Output will be reduced by 500,000 barrels per day in March

Russia will voluntarily reduce oil production in March by 500,000 barrels per day as it halts sales to buyers complying with a Western-imposed price cap, Russian Deputy Prime Minister Aleksandr Novak announced on Friday.

Novak said the move should help restore market relations shattered by the price ceiling, which he branded “illegal.”

“Russia believes that the mechanism of price caps on Russian oil and petroleum products is an intervention in market relations and an extension of destructive energy policies of the collective West,” the deputy PM said in a statement.

The EU and the G7 nations introduced a price cap on Russian supplies on February 5, setting a limit of $100 per barrel for diesel, jet fuel and gasoline coming from Russia, and a $45 per barrel for other oil products that trade below the crude price, such as fuel oil used in industry. Fuel exports priced over these limits will be barred from insurance and shipping services from companies located in Western countries. The caps follow a previously introduced $60-per-barrel price ceiling on Russian crude oil.

READ MORE: EU embargo on Russian oil products kicks in

Russia has repeatedly warned of potential output cuts since the EU and G7 began discussing capping the price of Russian exports. Economists say the production reduction, which is the equivalent of about 5% of January’s output, may trigger volatility on the oil market, which has taken in its stride the EU ban on seaborne imports of Russian oil.

Russia is currently able to sell “all volumes of oil produced” to foreign markets, Novak said, adding that “we will act based on how the market situation is developing,” when making further decisions.

There are concerns that Moscow’s decision will deepen the 2 million barrel-a-day supply curbs announced late last year by OPEC+, which Russia leads along with Saudi Arabia.

An analyst at UBS Group, Giovanni Staunovo, told Bloomberg that in the short term there is nobody to fill the supply gap created by the Russian cuts.

Crude prices jumped on the news, with the international benchmark Brent rising more than 2% to $86.60 a barrel as 13:00 GMT on Friday.

Find more stories on economy and finance in TROIB business