Russia says it may cut oil production and exports by up to 7% over the price restriction
Russia’s first response against the price cap
Russia may cut oil output by 500,000 to 700,000 barrels per day (bpd) in a response to the price caps on its crude and refined products, Deputy Prime Minister Alexander Novak told state television on Friday.
This is the first time the Russian response to the price cap introduced by G7 countries after two weeks of silence.
“We believe that in the current situation, it is even possible to take risks of lower production rather than be guided by the selling policy regarding the price cap. Today it is $60, tomorrow it can be anything, and getting dependent on some decisions made by unfriendly countries is unacceptable for us.” Novak also stated.
He said to the television that oil output of this country is expected to rise to 535 million tonnes (10.7 million bpd) from the level of 524 million tonnes in 2021, however, natural gas production will sink by up to a fifth to 671 billion cubic meters.
Also, he believed that oil prices will recover soon and sanctions and price caps are all well-prepared and anticipated.
He also praised the OPEC+ group of global leading oil production, including Russia, saying the oil price will probably remain in the current range of $70-$100 per barrel in the absence of any unforeseen events emerging.
China’s easing restriction of Covid-19
The threat of cut-down output of Russian oil appears since China’s shift from Covid Zero to improving the potential demand for the next year.
Despite the climbing number of cases, the country is now easing restrictions on quarantine rules for air travel, which should encourage the demand and consumption of oil in the next few weeks.
Consequently, since the news, WTI increased more than $2, while Brent was above $83 regardless of the fears of escalating global recession. It means that WTI has suffered two consecutive weeks of climbing.
In the United States, this week sees a reduction in commercial crude inventories, along with nationwide reserves at their lowest for this time of year since 2014. “There is now a high likelihood that the Biden administration will gear up oil purchases heading into the new year,” said Ole Hvalbye, an analyst at SEB AB.
Potential retaliation from Vladimir Putin
Russian President Vladimir Putin said on Thursday he intended to issue a decree early next week on the nation’s reaction to the oil price cap, containing unspecified “precautionary measures”.
He added that the introduction of the cap would not harm Russia’s budget and companies, since Russia sells oil at about similar prices.
Earlier on December 5, an embargo on seaborn oil exports from Russia to the European Union took effect.
The price cap of $60 per barrel was imposed by the EU, G7 countries as well as Australia. It prohibits shipping, insurance and reinsurance companies from providing services to cargos carrying oil from Russia at a price above the cap.
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