Oil prices jump after Russia announces production cuts

Oil prices jumped more than 2% on Friday, heading for weekly gains, as Moscow announced plans to reduce crude production next month in response to Western price caps.

Brent crude futures were trading 2% higher to $86.21 a barrel while US West Texas Intermediate (WTI) futures were up 2% at $79.63. Both contracts are on course for weekly gains of around 10%.

Earlier on Friday, Russian Deputy Prime Minister Aleksandr Novak announced that Moscow will voluntarily reduce oil production in March by 500,000 barrels per day as it halts sales to buyers complying with a Western-imposed price cap.

Novak said the move should help restore market relations shattered by the price ceiling, which he branded “illegal.”

The EU and the G7 nations introduced a price cap on Russian refined oil products on February 5, setting a limit of $100 per barrel for diesel, jet fuel and gasoline coming from Russia, and a $45-per-barrel cap for other oil products that trade below the crude price, such as fuel oil used in industry. Fuel exports priced over these limits will be barred from insurance and shipping services from companies located in Western countries. The caps follow a previously introduced $60-per-barrel price ceiling on Russian crude oil.

Moscow has repeatedly warned of potential output cuts since the EU and G7 began discussing capping the price of Russian exports. Economists say the move may trigger volatility on the oil market.

“Lower Russian production together with China’s reopening should tighten the oil market further over the coming quarters,” UBS Strategist Giovanni Staunovo said in a Friday note to clients, seen by CNBC.

There are also concerns that Moscow’s decision will deepen the two-million-barrels-a-day supply curbs announced late last year by the OPEC+ alliance.

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