Russia Extends Oil Production Cut Through June

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Russia said on Tuesday it will extend its unilateral production cut of 500,000 barrels per day for another three months until the end of June.

The move contributed to a stabilization of crude oil prices, which fell sharply last week on concerns that an international banking crisis could weaken global demand for oil.

The decision to extend the Russian production cut was announced by Deputy Prime Minister Alexander Novak, who said the global oil market was facing "unprecedented negative pressure from artificial hand-made factors that create greater volatility and uncertainty."

Moscow had described the initial decision to cut its production during the month of March as a response to Western sanctions against Russia.

It said at the time that the duration of the cut would depend on market conditions.

Western sanctions include G7 price caps on exports of Russian crude oil and refined products to those countries that have continued to import them since Moscow's invasion of Ukraine just over a year ago.

"Russia is now close to achieving the targeted level of cuts, which will be reached in the coming days," Novak said in a statement.

However, as of Mar. 20, export and refining data reviewed by Energy Intelligence did not point to a significant reduction in Russia's output for the month.

Deep Discounts

The decision to rein in production is largely driven by Moscow's concerns about the deeply discounted prices that willing buyers such as India and China have been paying for its Urals crude.

This has eroded the government's oil and gas revenues and could make it more difficult to fund the war in Ukraine — the main objective of Western sanctions.

The production cut could support global oil prices but its unclear how they might affect the big discounts which were negotiated by Russian producers and their customers long before the G7 crude oil price cap of $60 per barrel took effect on Dec. 5. Price caps for refined products took effect on Feb. 5.

Russian oil companies should have no problems in implementing the production cut, having learned how to adjust their output up and down during years of cooperation with Opec producers.

Moscow may have discussed its plans in advance with Saudi Arabia, when Novak visited the kingdom last week for talks with Energy Minister Prince Abdulaziz bin Salman.

Saudi Arabia and Russia are by far the two biggest oil producers within the Opec-plus alliance , which Novak lauded in his statement.

"Opec-plus is an important and reliable instrument in market balancing, consistent in its decisions that are taken based on fundamental factors and not on political messages," he said.

Will Cut Lead to Lower Exports?

Russia's production cut might have little impact on global oil supplies and prices, if it does not lead to lower exports and merely offsets reduced shipments to domestic refineries as planned maintenance starts in April.

Sources familiar with Russian export planning say scheduled crude oil exports via the Transneft pipeline network in April-June amount to 3.99 million b/d, an increase of 170,000 b/d over the January-March schedule.

However, actual shipments often differ from the scheduled volumes.

The April-June schedule for Russia's Pacific port of Kozmino shows scheduled exports of 820,000 b/d, up 23,000 b/d from the January-March schedule and up 129,000 b/d from the schedule for April-June 2022.

Almost all of the crude shipped from Kozmino goes to China and the capacity of the terminal there was expanded by 10% last year.

China's imports of Russian crude oil surged to 1.95 million b/d in January-February of this year, well above the 2022 average of 1.73 million b/d.

"Russia is ready to grow uninterrupted oil supplies for the needs of the Chinese economy," President Vladimir Putin said during a meeting with his Chinese counterpart Xi Jinping in Moscow on Tuesday.

China's purchases of Russian oil, gas and coal have been a lifeline for Moscow at a time when the West is shunning Russian energy.

However, no major new energy deals materialized during Xi's visit.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Oil Supply, Sanctions, Ukraine Crisis, Opec/Opec-Plus
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