Commodity prices resumed their growth after Deputy Prime Minister Alexander Novak said that Russia plans to cut oil production by 500,000 barrels per day in March
The price of April Brent crude futures on the London ICE Futures exchange rose by 2.78% to $86.85 per barrel, according to exchange data as of 12:03 Moscow time. Brent last traded at these levels on January 31.
The price of WTI crude oil futures for March delivery on the New York Mercantile Exchange is rising by 2.77% to $80.22 per barrel.
Quotes reversed into growth following the morning decline after Deputy Prime Minister Alexander Novak told journalists that Russia intends to cut oil production by 500,000 barrels per day in March. According to Novak, this "will contribute to the restoration of market relations".
Russia to cut oil production by 500,000 barrels per day
The Russian Deputy Prime Minister also said that Russia currently sells its entire volume of produced oil. However, Novak again reminded that those who directly or indirectly follow the price cap principles will not be supplied with crude.
At BCS World of Investments, attention was drawn to the lack of details on which companies would cut production and by how much. "If we take 2020 as an example, when production was reduced under the OPEC+ deal, the largest volumes of lost production fell on Bashneft and Slavneft, while Gazprom Neft and NOVATEK were the least affected," — the investment company recalled.
"The announced production cut is lower than expected: restrictions on the export of petroleum products could have led to a production reduction of 0.7 million barrels per day," — noted Valery Veisberg, Director of the Analytical Department at the investment company Region.
He clarified that it is still difficult to say what the production cut will lead to — a reduction in refining and the export of petroleum products or a reduction in crude oil exports.
According to Veisberg, in the second case buyers of Russian Urals crude may agree to a slight reduction of the discount to Brent.
"However, the market growth in Brent quotes is clearly excessive for the announced cut: 0.5 million barrels per day — less than half a percentage point of global consumption; this volume can be replaced by production growth, for example, in Nigeria," — the expert concluded.
Earlier, Kommersant wrote that in November — even before the introduction of the price cap and the EU oil embargo — Russia produced an average of 1.487 million tonnes of oil per day (equivalent to 10.9 million barrels per day). In December, after the restrictions were introduced, production in the country almost did not change and remained at 1.486 million tonnes (10.89 million barrels per day). In January, according to preliminary data, production fell to 1.481 million tonnes per day (slightly less than 10.86 million barrels per day). This is only 0.4% below the November 2022 level.
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