According to Russian Deputy Prime Minister Novak, Russia will cut its oil production by 5 percent in March to restore market ties. The decision comes at a time when the EU imposed an embargo on Russian oil.
Russia will cut oil production by 500,000 barrels a day (about five percent) in March, Russian Deputy Prime Minister Alexander Novak said on Friday, February 10. He explained:
“Russia will voluntarily cut its production by 500,000 barrels a day in March. This will help restore market relations.”
For further decisions, the country will be guided by the market situation, said the deputy prime minister.
For his part, Russian presidential spokesman Dmitry Peskov told reporters that Russia had previously discussed production cuts with a number of parties to the OPEC+ agreement. But Nowak emphasized:
“This is a voluntary cut – there was no consultation with anyone.”
In December 2022, Nowak had acknowledged that oil production would fall in early 2023 due to the European embargo on oil imports from Russia and the introduction of a price cap for third countries, which include the G7 (US, Canada, UK, France, Germany, Italy and Japan) and Australia connected could be cut by about 500,000 to 700,000 barrels per day, or five to seven percent. The G7, the EU and Australia are forming a price cap coalition created in response to Russia’s special military operation in Ukraine, aimed at cutting Moscow’s export earnings.
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The deputy prime minister said at the time it was an insignificant amount, but “such risks exist”. In January, however, production fell just 0.4 percent from 10.9 million barrels a day to 10.86 million barrels a day, the newspaper said Kommersant reported. Projected oil production for Russia, however, is expected to fall 8.4 percent this year to 490 million tons (9.8 million barrels per day).
The Russian budget forecast was based on the EU embargo on Russian oil imports, which came into effect on December 5, 2022, and the embargo on the import of petroleum products, which came into effect on February 5, 2023. At the same time, price caps for deliveries of oil and petroleum products from Russia to third countries were set: $60 per barrel for oil, $100 for light oil products and $45 per barrel for dark oil products. Buyers of Russian oil and petroleum products must now either agree to buy them at a price not exceeding the set limit, or accept that the West will completely ban its companies from transporting and insuring this commodity.
According to Nowak, Russia is now selling all the oil it produces but, as promised, will not sell to those who directly or indirectly adhere to the price caps. The Deputy Prime Minister again described the introduction of this mechanism as illegal.
At the end of December, Russian President Vladimir Putin signed a decree on retaliatory measures against sanctions imposed by the European Union and its allies. The document states that supplies of Russian petroleum and petroleum products to foreign nationals and companies are prohibited if the contracts “directly or indirectly provide for the application of a price cap mechanism”. The ban on oil shipments will last for five months, from February 1 to July 1, 2023, with the duration of the ban on shipments of oil products to these countries to be determined by the government.
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