Oil prices surge as Russia says it will slash crude production by 5% next month
- Russia will slash its oil production by 5% starting next month, a top Russian official said on Friday.
- Oil prices surged shortly after the announcement, with Brent crude rising 2.5%.
Oil prices surged on Friday as Russia announced it would slash its crude production by 5% next month, following through on earlier threats to retaliate against Western sanctions.
"We will not sell oil to those who directly or indirectly adhere to the principles of the price ceiling," Russia's deputy prime minister, Alexander Novak, said in a statement on Friday. "In relation to this, Russia will voluntarily reduce production by 500,000 barrels per day in March. This will contribute to the restoration of market relations."
Crude prices surged shortly after the announcement, with Brent crude briefly rising 2.5% to $86.60 a barrel. Prices later eased to $85.64 a barrel.
The output cut amounts to half a million barrels a day – lower than what Russian officials previously suggested – but it's a sign that the Kremlin is further weaponizing energy supplies in response to tougher sanctions.
In December, the European Union banned seaborne imports of Russian crude and slapped a $60 price cap on it, causing Moscow's oil and gas revenue to nosedive by 50%. Its budget deficit also expanded to 1.76 trillion rubles ($24.78 billion) in January, as Russia struggled to square its finances amid Western trade restrictions and increased spending from its invasion of Ukraine.
And earlier this month, the EU imposed a similar ban and price cap on imports of Russian refined fuel products.
Russian President Vladimir Putin has called the oil price cap "stupid," and Russia has outlined three potential methods of retaliation — including a production cut to spike oil prices for any country that enforced the price cap.
JPMorgan has estimated that Russia could cut as much as 5 million barrels of oil a day without severely hurting its economy, a move that could send crude soaring to $380 dollars a barrel.