Russia to cut oil output in response to price cap by west

Russia will cut about 5 per cent of its monthly oil output in March in response to the price cap imposed by western nations, its deputy prime minister said on Friday.

The “voluntary” reduction of 500,000 barrels a day of Russia’s production, the equivalent of 0.5 per cent of the world supply, will help “restore market relations”, a statement from Alexander Novak said.

The announcement comes days after the latest EU sanctions and other western measures took effect against the Russian oil sector.

The EU extended its ban on seaborne imports of Russian crude to cover refined fuels such as diesel and petrol, while the G7 imposed a price cap on the same fuels that buyers must abide by if they are to access western tanker and insurance markets.

“Russia believes the price cap mechanism for selling Russian oil and oil products interferes with market relations,” Novak said. “It continues the destructive energy policy of the countries of the collective west.”

Brent crude, the international benchmark, rose 2.3 per cent to $86.43 a barrel immediately after the announcement.

The move will raise concerns that Russia is moving to weaponise oil supplies after it slashed natural gas exports to Europe last year in response to western backing for Ukraine.

Until Friday Russia had broadly tried to maintain oil exports, which provide more government revenues to Moscow than gas, to international markets. But analysts warned it may be struggling to sell all of its oil as western sanctions have intensified.

Russia has long warned it could respond to the price cap and has said it will not deal with buyers who formally use it. Its main export crude Urals, however, has fallen to a large discount, meaning it already prices below the cap.

“It’s been threatened for a long time in response to the western measures like the price cap,” said Amrita Sen at Energy Aspects.