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An oil tanker in Novorossiysk, a Russian port on the Black Sea. Russia’s deputy prime minister, Alexander Novak, said the country has been “fully selling” all of the oil it has produced. Credit…Associated Press

Oil prices rose on Friday after Russia’s deputy prime minister, Alexander Novak, said that his country would cut production in March by 500,000 barrels a day — or about 5 percent of its output.

Russia is the world’s third-largest producer of oil, and the announcement by Mr. Novak, who is the Kremlin’s point person on energy, immediately sent prices more than 3 percent higher before they eased. Later in the day, futures for Brent crude, the international benchmark, were 1.6 percent higher, at $85.61 a barrel. West Texas Intermediate rose similarly, briefly rising above $80 a barrel.

The cutback in production would be Moscow’s first substantive response to a wave of recently imposed sanctions on Russia’s oil trade, including a Western price cap of $60 a barrel imposed in December.

Mr. Novak’s statement was combative, repeating a refrain from Russian leaders that “we will not sell oil to those who directly or indirectly adhere to the principles of the price cap,” he told reporters, according to the Russian news agency Interfax.

But analysts said that the announcement could be an indication that Russia, which has done surprisingly well at maintaining production in recent months, is worried about the erosion of oil revenue under recently imposed sanctions.

“Russia might be feeling that more and more countries are going to start attempting to use the price cap scheme,” said Felix Todd, an analyst at Argus Media, a pricing data firm.


Moscow also may be trying to put the best face on a bad situation, analysts say.

“If Russia is going to have to lessen production — even for a period — it would rather try and give the impression that it is choosing to do so or is in control rather than that this being forced on it by Western governments’ policies,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.

Mr. Novak said the production cut would “contribute to the restoration of market relations.” He also appeared to counter the idea that Russia was having trouble finding buyers for its crude. “Today, we are fully selling the entire volume of oil being produced,” Interfax quoted him saying.

For the last five years, Russia, along with Saudi Arabia, has been a co-leader’ of OPEC Plus, the oil producers’ group that has banded together to try to manage the oil market. If Russia does cut production, it could wind up falling about a million barrels a day short of its OPEC Plus ceiling. In terms of the overall global market, a reduction of 500,000 barrels a day would represent about 0.5 percent of oil output.

In recent weeks, there has been an abundance of Russian crude available, giving buyers leverage to extract discounts approaching 50 percent, or 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 there is less Russian crude available, buyers may be forced to settle for a smaller discount.

Following 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 its budget, would become “less predictable” in the future.

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.

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 restrictions.

Reporting from London

Written by trendingatoz

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