Crude oil prices rose by roughly a percent on Friday morning on news that Russia was considering a production cut.
Brent crude oil prices rose by 0.85% on Friday morning to $76.80 at 10:20 a.m. ET, after Russian President Vladimir Putin succinctly referred to the West’s price cap as “stupid”, threatening to cut oil production in retaliation.
President Putin also reiterated that it could refuse to sell oil to any country that participates in the G7’s “stupid” price cap.
"As for our reaction, I have already said that we simply will not sell to those countries that make such decisions," Putin said, adding that “We will think, maybe, even about a possible, if necessary ... reduction in production.”
Putin said that “concrete steps” will be outlined by Putin’s decree and released in the next few days.
The G7 agreed on a $60 price cap on Russian seaborne crude oil. This leaves any country the ability to purchase Russian crude oil—except for Europe, of course—just as long as they purchase it for less than $60 per barrel. EU, G7, and Australian shippers are barred from carrying Russian crude oil that was purchased at levels higher than the price cap, and insurance brokers from those nations are barred from covering Russian cargo purchased higher than the cap.
Russia, however, is still selling its ESPO grade to buyers in Asia for more than the $60 cap, because the shipping methods used are not affiliated with price cap signatory countries, suggesting that at least for now, Russia has found a way to ship its product despite the price cap.
The price cap went into effect on Monday, December 5, but Russia was quick to dismiss it, stating that it would not sell its oil to any country involved in the price cap. Today, Putin is saying that the country could even cut production—an act that could send oil prices rising higher, increasing Russia’s revenue even if its sales slump.
While crude oil prices rose on Friday morning, Brent prices have slumped considerably for the week, falling nearly $9 per barrel since Sunday.
By Julianne Geiger for Oilprice.com
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Unfortunately for the US-led Western countries, the oil initiative isn’t with them. It is with President Putin and OPEC+.
President Putin has already said that he will halt oil exports to countries implementing the cap and could also cut production in retaliation thus creating shortages in the market and hiking prices. Moreover, OPEC+ will never accept the cap as it is against the interests of its members.
Shortly the cap will end up in a waste basket and oil prices will resume their surge.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert