(Bloomberg) — Russia may reduce its oil output by 500,000-700,000 barrels a day in early 2023 in response to the Group of Seven’s price cap on the nation’s crude exports, according to Deputy Prime Minister Alexander Novak.
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“We are ready to partially cut our production early next year,” he said in an interview with Rossiya-24 TV channel, adding the volumes equate to roughly 5%-6% of what Russia’s now pumping.
“We’ll try to find some common ground with our counterparts to prevent such risks,” Novak said. “But right now we’d rather take a risk of a production cut than stick to the policy of selling in line with the threshold.”
While he described the potential output declines as “insignificant,” a cut of that size could still tighten the global oil market at a time when many analysts predict demand in China will be rebounding.
Novak, Moscow’s main negotiator at OPEC+ and the key governmental energy official, reiterated that Russia will not sell its crude to buyers and nations that use the western price cap. Russian producers are able to reroute their exports to competing markets, including Asia, as the nation’s energy is still in high demand globally, he said.
Oil prices have jumped in the past two weeks and climbed further on Friday, with Brent trading at almost $82 a barrel.
President Vladimir Putin told reporters on Thursday he will sign a decree on the nation’s response to the cap on Monday or Tuesday. It will feature “preventive measures,” he said, without elaborating.
Russia’s full-year oil production this year will probably grow to 535 million tons, according to Novak. That’s equivalent to around 10.74 million barrels per day, based on a 7.33 barrel-per-ton ratio. Russia’s average daily output in November reached an eight-month high of 10.9 million barrels, according to industry data seen by Bloomberg.
The G7 and European Union’s $60-per-barrel cap on Russian seaborne crude supplies began on Dec. 5. That move and a ban on EU imports of seaborne Russian flows, regardless of the price, were designed to curb the Kremlin’s oil revenues and hinder its ability to fight in Ukraine.
Russian oil cargoes that are traded above the threshold cannot access some key services from western companies, including insurance.
The market price for Russia’s Urals crude — shipped from its western ports and which mostly went to Europe before the invasion of Ukraine — is currently well below the cap.
Still, in the first full week after the EU ban, Russia’s seaborne exports dropped by 54% to 1.6 million barrels per day, according to shipping data compiled by Bloomberg.
Russia will monitor the oil market in the first quarter to see the impact of the price cap before deciding whether to take further retaliatory measures, such as a price floor, according to people familiar with the matter.
(Updates with Novak’s comments in the third and fourth paragraphs.)
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