Oil prices jump over 2% as Russia announces plan to slash production by 500,000 barrels a day

Russia’s Deputy Prime Minister Alexander Novak on Friday announced that Moscow plans to cut oil output by 500,000 barrels per day in March in response to price caps imposed by the West on Moscow’s crude and oil products. The announcement triggered a quick market response and oil prices jumped more than 2 per cent on Friday, heading for weekly gains.

Brent crude futures rose $2.17, or 2.57 per cent, to $86.67 a barrel by 0900 GMT. US West Texas Intermediate (WTI) crude futures were up $2.01, or 2.57 per cent, at $80.07. Both contracts were on course for weekly gains above 8 per cent.

The Group of Seven major democracies, the European Union and Australia have imposed a $60-per-barrel price cap on Russian oil shipped to non-Western countries. The goal is to keep oil flowing to the world to prevent price spikes that were seen last year, while limiting Russia’s financial gains that can be used to pay for its campaign against Ukraine.

Deputy PM Novak said on Friday that Russia plans to reduce its crude oil production in March by 500,000 barrels per day (bpd), or about 5 per cent of the output.

“As of today, we fully sell all our crude output, but as we stated before, we will not sell oil to those who directly or indirectly adhere to the price ceiling and hence will voluntarily cut production by 500,000 barrels a day,” Novak said in remarks carried by Russian news agencies.

“The Russian economy is fraying in the face of Western sanctions,” PVM analyst Stephen Brennock said. The measures will crimp the Kremlin’s fossil fuel earnings and exacerbate its fiscal woes by the end of the year, he added.

The announcement marked a turnaround for bearish sentiment that characterised trade on Thursday and Friday morning against a backdrop of recession fears in the United States and weak demand data from China.

Goldman Sachs lowered its Brent 2023 price forecast to $92 a barrel (bbl) from $98/bbl and its 2024 price forecast to $100/bbl from $105/bbl.

China’s consumer price index (CPI) in January increased from December, with inflation approaching the target of about 3 per cent set by the government last year.

The latest U.S. oil inventory data this week also raised fears of a slowdown in the world’s biggest economy, with crude stocks having climbed to their highest since June 2021.

This was followed by a rise in weekly US jobless claims.