Briefly: Russia announced on Friday (10 February) it would cut oil production by 500,000 barrels per day in March, or approximately 5% of its total output. Global oil prices rose from $84 to $86 a barrel on Friday morning following the announcement.
Russia claims the voluntary cuts – made without other OPEC oil producers – are a response to Western sanctions and the G7’s oil price cap scheme. The G7 scheme came into effect in December and caps the price of most Russian crude at $60 per barrel. By cutting supply in response, Russia hopes to push back with its own upwards pressure on prices.
But the cuts might not be as voluntary as they seem. Due to Western sanctions, demand for Russian oil is likely still below supply. Without Western buyers, India and China have happily imported Russian oil by the barrelful at steep discounts.
As a result, Russia is earning less: oil revenues in January 2023 were half what they were a year earlier. So if the market is forcing Russia to cut production anyway, its announcement may simply be about appearing in control rather than at the mercy of Western sanctions.
Intrigue’s take: Russia’s announcement tells us two important things:
- Western oil import bans and price caps seem to be working to disrupt the Russian economy where other sanctions have largely failed.
- If China’s energy demand continues to climb from its Covid-zero trough, we can all expect higher energy prices ahead.
Also worth noting: