russia oil - Andrey Rudakov/Bloomberg

russia oil – Andrey Rudakov/Bloomberg

Russia is preparing to cut its oil output by tens of millions of barrels per month in response to a Western price cap that threatens the Kremlin’s revenues.

Alexander Novak, deputy prime minister, said oil output could be reduced by 5pc-7pc per day in response to price caps imposed by the West.

Mr Novak told state television the cuts could reach 500,000-700,000 barrels per day, which is a fraction of global supply but would nonetheless add pressure on a tight oil market.

The move threatens to drive oil prices higher, adding to cost of living pressures across the West.

As well as punishing its enemies, higher oil prices would allow Moscow to demand more money from buyers such as China and India who are snapping up Russian oil.

Vladimir Putin, Russia’s president, is expected to issue a decree early next week responding to the Western policy, which uses financial muscle to impose a maximum price of $60 [£50] per barrel on Russian oil exports.

The cap has been designed to lower the money the Kremlin can make from oil, which helps fund its war against Ukraine. However, it does not prevent Russian oil from flowing, given its importance to the market. Russia accounts for about 10pc of global production.

Russian oil was trading at a heavily discounted price even before the price cap, with Urals oil blend averaging $57.49 per barrel between November 15 and December 14, below the price cap and $20-$30 cheaper than Brent Crude.

Nathan Piper, head of oil and gas at Investec, said: “What they’re trying to do is to manipulate the market, perhaps to push the price up, so that even if there is a price gap they are able to achieve a higher oil price themselves.

“It’s a 100m-barrel-per-day market, but the amount of spare capacity is only 2-3 million barrels a day. So threatening to cut half a million barrels is not nothing; they’re trying to influence what is already quite a tight market.”

India and China have ramped up their purchases of Russian oil this year as Western buyers have turned their backs on the market. India bought on average just under one million barrels per day from Russia between September and November, according to Alan Gelder, oil market expert at Wood Mackenzie. Purchases before the war were negligible.

Mr Gelder said the cuts signalled by Russia were lower than what markets had feared, while traders were focused on what would happen to Chinese demand as Covid rules are relaxed, helping the economy to re-open but driving a surge in infections.

Brent crude rose 1.7pc by 11am UK time on Friday, to $82.38 per barrel, while West Texas Intermediate rose to $78.98 a barrel, up nearly 2pc.

It means oil prices are now at similar levels to the start of the year, having hit highs of almost $128 per barrel in March.


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