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Russia’s decision to reduce its oil production by 500,000 barrels per day (bpd) in March will help balance the global oil market, which is in a surplus now, Alexander Dyukov, chief executive of Russian oil company Gazprom Neft, said on Tuesday.
“Currently the market is in a surplus, so the Russian government’s decision to cut supply is aimed at rebalancing it,” Dyukov told reporters today, as carried by Russian news agency Interfax.
Russian Deputy Prime Minister Alexander Novak said in early February that Russia, a member of OPEC+, would voluntarily cut its oil production by 500,000 bpd in March as a result of the Western sanctions and the price cap on Russian crude oil.
The Russian production cut could be “a sign that Moscow may be struggling to place all of its barrels,” or “may be an attempt to shore up oil prices,” the International Energy Agency (IEA) said in its Oil Market Report for February.
The attempt at an oil-price boost has failed so far—prices have been pressured this month by signs that the Fed could raise interest rates to a higher endpoint and hold them there for longer to fight sticky inflation.
Speaking to reporters today, Gazprom Neft’s Dyukov also said that oil prices would be volatile this year, too, and could be in the range of $80-$110 per barrel.
On the one hand, there is a surplus on the market, but on the other hand, Russia’s crude and oil products are being redirected to new markets, which leads to higher transportation costs, reflected in the prices, Interfax quoted Dyukov as saying.
“This is a consequence, among other things, of the sanctions pressure on Russia,” Dyukov said.
Market volatility will be high, but there are tools to temper the volatility, especially from the OPEC+ group, he added.
“OPEC+ is one of the key mechanisms that could reduce market volatility…Time will tell, but OPEC+ has proven to be an effective tool,” Dyukov said.
Immediately after the Russian announcement of the cut for March, OPEC+ signaled the group doesn’t plan to change the course in its oil production targets.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com