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Russia Cuts Oil Production Over Western Price Caps

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Russia Cuts Oil Production Over Western Price Caps

(CTN NEWS) – MOSCOW –  In response to Western nations capping the price of its crude due to its actions in Ukraine, Russia stated Friday that it would reduce oil production by 500,000 barrels per day starting next month.

In comments reported by Russian news media, Deputy Prime Minister Alexander Novak said, “As of today, we fully sell all of our crude output, but as we indicated before, we would not sell the oil to anyone who either directly or indirectly adheres to the ‘price ceiling’.”

Russia will voluntarily reduce output by 500,000 barrels per day about that. It will assist in improving ties in the marketplace, he claimed.

According to analysts, one potential Russian response to the cap would be to reduce output to drive up oil prices. As less oil reaches the global market, this might eventually result in higher gas prices at the pump.

Friday’s trading saw benchmark Brent crude rise 1.5% to $85.75 a barrel.

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Russian oil exported to non-Western nations is now limited to a $60 per barrel price by the Group of Seven major democracies.

While restricting Russia’s financial benefits that may be used to finance its offensive against Ukraine, the objective is to maintain oil flow to the world to avoid price increases like those experienced last year.

The cap is enforced by prohibiting oil prices over the quota from being moved by Western businesses dominating the shipping and insurance industries.

Russia has stated that it will not supply oil to nations that adhere to the price cap, but this is irrelevant because Russian oil has recently been trading below the price cap.

However, the cap, a corresponding EU embargo on the majority of Russian oil, and weaker crude demand have allowed consumers in India, Turkey, and China to demand significant discounts on Russian oil.

Russia-Ukraine war: G7 price cap on Russian oil kicks in | Russia-Ukraine war News | Al Jazeera

Given that the oil demand is declining due to a weakening global economy, it is unclear what effect a reduction of 500,000 barrels per day will have.

To raise oil prices, the OPEC+ alliance of oil producers, including Russia, said in October that it would reduce output by 2 million barrels per day. However, by December, prices had dropped below $80 per barrel.

When asked if Russia had discussed its new output cut with OPEC+ members, Kremlin spokesperson Dmitry Peskov responded that “there had been contacts with some members of the OPEC+” before the public decision. He made no more comments.

However, Novak reiterated in a later statement that Moscow decided without seeking any advice.

According to Russian media, the deputy prime minister stated, “It’s a voluntary cut; there have been no conversations with anyone regarding it.”

After failing to weaponize natural gas last year, the current reduction could be “an early indicator that Russia might try to weaponize oil supplies,” according to Simone Tagliapietra, an energy policy researcher at the Bruegel think tank in Belgium.

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But doing so could be challenging since it is simpler to identify new sources of oil, which are traded through global tanker networks, than it is to find new sources of natural gas, which, before the war, was primarily transported to Europe by pipeline.

Russian producer Gazprom has stopped most natural gas deliveries to Europe due to technical difficulties and certain customers’ refusal to pay in Russian rubles. Officials from Europe see it as payback for their support of Ukraine.

Although Europe did experience high natural gas prices, as a result, it was able to partially offset the loss of Russian supplies from other sources, such as ship-borne liquefied gas from the United States and Qatar.

Although they have already decreased from their record highs last summer, natural gas prices are still three times higher than before Russia amassed soldiers on the Ukrainian border.

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Alishba Waris is an independent journalist working for CTN News. She brings a wealth of experience and a keen eye for detail to her reporting. With a knack for uncovering the truth, Waris isn't afraid to ask tough questions and hold those in power accountable. Her writing is clear, concise, and cuts through the noise, delivering the facts readers need to stay informed. Waris's dedication to ethical journalism shines through in her hard-hitting yet fair coverage of important issues.

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