Oil Prices Ease after Russian Output Cuts
On Monday, oil prices declined after a 2% increase in the previous session as investors disregarded the impact of the cuts in Russia’s crude production. The focus shifted to the short-term demand concerns caused by the refinery maintenance in Asia and the United States.
Russia to Cut Crude Production in March
On Friday, oil prices rose after Russia, the world’s third-largest oil producer, announced that it would reduce crude production by 500,000 barrels per day in March. This reduction is equivalent to approximately 5% of Russia’s output and is in response to western restrictions on its exports imposed due to the ongoing conflict in Ukraine.
Market Realization
As per the data from 0153 GMT, futures declined by 69 cents, or 0.8%, to $85.70 a barrel after a 2.2% increase on Friday. On the other hand, U.S. West Texas Intermediate crude decreased by 68 cents, or 0.9%, to $79.04 a barrel. According to ING analyst Warren Patterson, the decline in prices in the early morning trading likely reflects the market’s realization that these cuts are already priced in.
Optimism Over China’s Demand Recovery
Last week, both contracts rose more than 8% due to the optimism surrounding China’s demand recovery. China is the world’s largest crude importer and also No. 1 oil consumer. Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore, stated that the 500,000 bpd cut would bring Russia back in line with its OPEC+ quota as Moscow is currently over-exporting.
OPEC+ Production Cut Agreement
In October, the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia, also known as OPEC+, agreed to reduce production by 2 million bpd, which is about 2% of the world’s demand. OPEC country officials informed Reuters that oil prices may resume their rally and reach $100 a barrel later this year due to China’s demand recovery and limited supply growth caused by a lack of investment.
U.S. Oil Rig Activity
According to a report by Baker Hughes on Friday, the number of operating oil rigs in the United States, the world’s largest oil producer, increased by 10 to 609 last week. This marks the largest weekly addition since June.