Oil prices jump as Russia slashes output to protest sanctions

Oil prices spiked on Friday after Russia said it will slash production output by 5%, or about 500,000 barrels per day, in March in response to Western energy sanctions over the war in Ukraine.

West Texas Intermediate crude, the US oil benchmark, rose more than 2% to nearly $79.66 per barrel. Brent crude, the international benchmark, spiked 2% to $86.25 per barrel.

“As of today, we are fully selling the entire volume of oil produced, however, as stated earlier, we will not sell oil to those who directly or indirectly adhere to the principles of the ‘price cap’,” Russian Deputy Prime Minister Alexander Novak said in a statement.

Novak claimed that the cuts would “help restore market-style relations.” Russia had repeatedly warned in recent months that it would take retaliatory action if the price cap took effect.

The latest output cut could “an early sign that Russia might try to weaponize oil supplies after last year’s failed attempt to weaponize natural gas,” Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels, told the Associated Press.

In December, G7 nations, including the United States and the European Union, instituted a price cap on most Russian oil shipments at $60 per barrel. The EU has also banned shipments of Russian crude oil and other oil products.

Under the price cap, firms that need to ship Russian oil will only be allowed to do so if the goods are priced at or below the $60 cap.

US Treasury Secretary Janet Yellen and other proponents of the oil price cap said it would allow the flow of oil to strained international energy markets while also limiting revenue for Russia following its brutal invasion.

Russia has responded to the price cap and other Western sanctions by increasing oil shipments to other parts of the world, including China and India.

The Kremlin said it had held talks with other members of the OPEC+ oil cartel – a producers group that includes Russia, Saudi Arabia and several other nations – about its decision to reduce production.

Last October, OPEC nations and Russia slashed oil output by 2 million barrels per day. The move occurred even after President Biden traveled to Saudi Arabia to request additional oil output and was widely seen as an effort by the OPEC nations and Russia to prop up prices.

Russia’s decision occurred last than two weeks after an OPEC+ panel voted to maintain output levels put in place last fall.

With Post wires