Moscow took up discounts on Russian oil

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Russia will cut oil production by 500 thousand barrels per day in March. This statement by Deputy Prime Minister Alexander Novak was heard by the market. World prices began to rise. Experts note that the Russian authorities may send a signal to consumers that the time of big discounts on Russian raw materials will not last forever.

After the statement by Deputy Prime Minister Alexander Novak on the reduction of oil production in Russia in March, the price of the benchmark grade Brent went up. In a few hours, it rose by 2.2% – to $ 86.3 per barrel.

“Judging by the reaction of Brent prices, the statement was heard, and against the backdrop of depleted US reserves, this adds optimism to the market,” – says the managing director of the rating service “National Rating Agency” (NRA) Sergei Grishunin. In addition, the expert notes, certain interruptions will be noted in the work of Turkish ports after the earthquake.

“Thus, in general, the reduction in production is a way to return the market nature of discounts on Russian oil, which grew in December and early January,” Sergei Grishunin notes. He believes that actions should help bring the market into line with the real state of affairs in the global economy and contribute to a return to normal pricing.

Leading Analyst at the National Energy Security Fund (NESF) and expert at the Financial University under the Government of Russia Igor Yushkov believes that the plans of the Russian authorities may have two explanations.

“Firstly, Russia may not find buyers for all the volumes of oil and oil products that are forced to redirect to Asian markets. Thus, after the introduction of an embargo in the EU, it may be necessary to reduce the production of petroleum products, and the released volumes of oil will not find their consumers. There may also be delivery problems due to the lack of enough loyal tankers, which have to make more distant voyages,” says the expert.

He himself is inclined to another version: “The state sees that large discounts on Russian raw materials and products are becoming the norm for buyers. The Russian leadership rightly believes that a large discount is a temporary measure for a transitional period, after which the discount should decrease. And cutting production could be an attempt to dry out the market. And including a signal to consumers that the time of big discounts is not endless, since for Russia it is not sales volumes that are important, but incomes.

From the point of view of the state, such a step is logical, notes Igor Yushkov.

“Companies keep $40 for each barrel, and everything above goes to the state. And in the current situation of large volumes and discounts, it is the budget that suffers, which is already in deficit this year,” – the leading analyst of the FNEB believes that the words of the vice-premier that the reduction is aimed at improving the market, suggest the idea that it is the reduction in income that is pushing Russia to reduce production.

Previously, Russia coordinated such actions with the participants in the OPEC + deal, which was created due to the oil crisis in 2020. In October, OPEC+ agreed to cut production from November by 2 million barrels per day, and in January decided not to make any adjustments.

This time, according to Alexander Novak, Moscow made the decision on its own without consultations. Kremlin representative Dmitry Peskov at the same time, he said that consultations were held, but with individual members of OPEC+.

“It seems that Russia did not inform OPEC + about plans to cut production. However, voluntary cuts by OPEC countries have been in the past (Saudi Arabia, Kuwait, UAE in 2020). Therefore, this does not mean that Russia wants to distance itself from OPEC+,” – writes on Twitter Amena Bakr from Energy Intelligence.

On December 5, the EU introduced a ban on oil imports from Russia, and together with the G7 set a price limit of $60 per barrel for third countries. Since February 5, similar restrictions have been in place for Russian oil products. According to the Russian Ministry of Finance, if in November the average price of Urals was $66.5 per barrel, then in January it was about $50.

Analyst FG “Finam” Alexander Potavin estimated that under such conditions the Russian budget could lose 1.9 trillion rubles of oil and gas revenues this year. For 2023, it includes revenues of 8.9 trillion.

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