Oil prices rise after Russia says it will cut output

Russia will cut oil output by 500,000 barrels per day in March, Deputy Prime Minister Alexander Novak said on Friday, following Western bans on Moscow’s crude and oil products implemented in the past few months. 

The announced production decline amounts to roughly 5% of Russia’s latest crude oil output, which Paris-based watchdog the International Energy Agency estimated was down at 9.77 million barrels per day in December.

The Brent contract for April delivery was trading at $86.26 per barrel at 11 a.m. London, jumping by $1.76 a barrel — over 2% — on the news compared to Thursday’s close price. The front-month Nymex WTI contract with March expiry was at $79.72 a barrel, also gaining 2% from the previous settlement.

Novak said that the reduction will “help restore market relations,” according to a Google translation of comments reported by state news agency Tass.

He noted that the cut does not apply to gas condensate and will be calculated from actual output levels, not from Russia’s quota under the OPEC+ output agreement. The decision was not made in consultation with the OPEC+ coalition, which Moscow co-chairs.

OPEC+ producers must typically agree consensus on output policy, with members bound to their targets. But the group has previously allowed voluntary gestures that honor the spirit of existing output agreements — in this case, the Russian decline would build on a previous OPEC+ decision to lower production by a combined 2 million barrels per day, agreed in October last year.

Other OPEC producers facing sanctions, such as Venezuela and Iran, have requested and received exemptions from their production quotas. Several OPEC+ delegates previously told CNBC that Russia had so far signaled no intention to ask for similar accommodations.

The EU implemented bans on seaborne imports of crude oil on Dec. 5 and of oil products this week. Under a program passed by the G-7 wealthiest nations, Western providers may continue to supply key financial and shipping services to transport Russian volumes to non-G7 destinations, provided these fuels are purchased beneath specific price caps.

“As previously stated, we will not sell oil to those who directly or indirectly adhere to the principles of the ‘price ceiling’,” Novak reiterated on Friday, adding that the price cap program could lead to oil and oil products shortages.

“Lower Russian production together with China’s reopening should tighten the oil market further over the coming quarters,” UBS Strategist Giovanni Staunovo said in a Friday note to clients.