The announcement that Russia will cut oil output in response to Western pricing limitations on the nation’s petroleum goods drove up oil prices on Friday.
Futures were trading 0.9% higher at $78.72 a barrel at 09:15 ET (14:15 GMT), while the contract was up 1.1% to $85.39 a barrel.
Russian oil production will be reduced by 500,000 barrels per day in March, or around 5% of January’s output, according to deputy prime minister Alexander Novak’s announcement on Friday.
Although Novak characterized the choice as “voluntary,” there is no question that the Western sanctions imposed as retaliation for Moscow’s invasion of Ukraine are seriously affecting the Russian economy.
With the major earthquake in Turkey already having an influence on oil shipments from Azerbaijan and Iraq, this action poses a possibility of significantly tightening the market.
According to sources, Azeri crude oil exports through the Ceyhan export facility in Turkey are still suspended and may not start up again until late next week, according to experts at ING.
Aside from the supply side, the week’s gains have been mostly driven by hope for a revival in demand in China, the world’s top importer of oil, which is attempting to revive economically after lifting more than three years of tight COVID mobility restrictions.
Earlier this week, the International Energy Agency reaffirmed its prediction for a significant recovery in Chinese demand this year, with the Asian economic powerhouse contributing about half of the predicted 2 million barrels per day increase in world oil demand.
However, fears that demand may be impacted by economic slowdowns in the US and Europe as the year goes on continue, and this week’s addition of another weekly build in the US further fueled those anxieties.
In light of this, the pro-oil Goldman Sachs cut its projection for Brent prices for 2023 and 2024 to $92 and $100, respectively, from $98 and $105 per barrel.