Oil on Friday posted its largest weekly gain in four months after Russia followed through on a threat to cut production in response to Western energy sanctions.
Moscow said it would reduce output by 500,000 barrels, equivalent to about 5 percent of last month’s levels. The cut was the first major effect on Russian production from the swath of sanctions that have been placed on the country’s output, leading West Texas Intermediate for March delivery to advance 2.13 percent to US$79.72.
It was up 8.6 percent from the previous week’s US$73.39.
Brent crude, the international benchmark, for March delivery rose 2.24 percent to US$86.39, gaining 8.1 percent from the previous week’s US$79.94.
This week’s rally also got a boost from Saudi Arabia’s decision to sell barrels at higher prices to Asian countries amid stronger demand from China, as well as supply disruptions in Turkey, Norway and Kazakhstan.
Russian Deputy Prime Minister Alexander Novak said the country’s production cut is voluntary and a response to Western price caps.
Still, analysts have been predicting some output losses following the recent sanctions announcements, TD Securities commodity strategy director Daniel Ghali said.
“It is possible that Russia is portraying these output losses as a decision to cut their oil production when they might have occurred regardless,” Ghali said.
Despite the cuts, Russia’s partners in the OPEC+ coalition signaled that they would not boost output to fill in for the reductions.
“Crude prices reacted positively to the news, considering that so far Russian oil production has been relatively resilient,” UBS Group AG analyst Giovanni Staunovo said.
“The move ... aims to improve oil revenues by narrowing the discount of Russian oil to Brent,” he said.
An EU-wide ban on Russian oil products — such as diesel, gasoline and jet fuel — came into effect on Sunday last week, alongside a G7 price cap on the same items.
That expanded on the EU embargo on seaborne oil deliveries introduced two months ago — when it also established with G7 partners a US$60 per barrel cap for Russian exports.
Oil, already bolstered by the reopening of top consumer China after lengthy COVID-19 pandemic restrictions, rebounded further on the news from Novak, who in charge of Moscow’s energy policy.
Russia is part of a 23-nation alliance with the OPEC crude cartel that already agreed in October to reduce output by 2 million barrels per day until the end of this year.
Additional reporting by staff reporter, with AFP
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