OPEC Plus said last week that it planned to stick with cuts of about two million barrels a day for the rest of the year. Analysts say Russia’s announced cuts appear unlikely to change that stance.
In recent weeks, an abundance of Russian crude has been available, giving buyers leverage to extract discounts of as much as $40 a barrel on Russia’s most important crude grade, Urals, according to Argus Media. By cutting back production, Russia may simply be trying to raise the price it receives. If less Russian crude is available, buyers may be forced to settle for a smaller discount.
“The glut is so big, they have to slash prices to find firm demand,” said Craig Kennedy, an associate at the Davis Center for Russian and Eurasian Studies at Harvard.
Mr. Todd of Argus said the discount had already narrowed by around $1 after Mr. Novak’s comments.
After the invasion of Ukraine, Russia’s oil output has held up better than many analysts expected. Russian companies found markets in India, Turkey and elsewhere to compensate for the loss of their key customers in Europe. But Russia has begun to collect less money from its oil sales. Late last year, the Kremlin conceded that oil revenues, a critical part of the country’s budget, would become “less predictable.”
In December, the European Union imposed an embargo on most Russian crude on the same day the Group of 7 nations imposed its price cap on Russian oil sold to other countries. And this week, a price cap and a European embargo went into effect on refined oil products from Russia, like diesel and gasoline.
With the latest embargo, Russia may finally have run out of new markets for its oil, analysts say. “They have been relatively successful this past year in redirecting crude” oil away from Europe, said Matthew J. Sagers, a vice president at S&P Global. “It was going to be far more difficult to do this with all the refined products they export,” he added.
On Friday the Russian central bank issued a statement noting the sanctions and how they had added uncertainty to its economic forecasts. “After the enactment of the price caps, export prices for Russian oil significantly vary depending on its grades and shipping points,” it said. About the production cut announced by Mr. Novak, the bank said it “will monitor how this decision will be influencing oil price trends.”
Any reduction of oil supplies risks lifting prices in a global market that is concerned about the potential for rapidly increasing demand from China, the world’s largest oil importer, now that Beijing has lifted Covid-19 restrictions.
