Oil prices jump more than 2% on Russian plan to cut output

Oil prices jumped more than 2% on Friday, heading for weekly gains, as Russia announced plans to reduce oil production next month after the West imposed price caps on the country’s oil and oil products.

Brent crude futures rose $2.17, or 2.57%, to $86.67 a barrel by 0900 GMT. U.S. West Texas Intermediate (WTI) crude futures were up $2.01, or 2.57%, at $80.07.

Both contracts were on course for weekly gains above 8%.

Russia plans to reduce its crude oil production in March by 500,000 barrels per day (bpd), or about 5% of output, Deputy Prime Minister Alexander Novak said on Friday.

“The Russian economy is fraying in the face of Western sanctions,” PVM analyst Stephen Brennock said.

The G7 economies, the European Union and Australia agreed to ban the use of Western-supplied maritime insurance, finance and brokering for seaborne Russian oil priced above $60 a barrel from Dec. 5 as part of Western sanctions over Russia’s actions in Ukraine.

The EU also banned purchases of Russian oil products and set price caps from Feb. 5. The latest measures will crimp the Kremlin‘s fossil fuel earnings and exacerbate its fiscal woes by the end of the year, Brennock added.

The announcement marked a turnaround for bearish sentiment that characterised trade on Thursday and Friday morning against a backdrop of recession fears in the United States and weak demand data from China.

Goldman Sachs lowered its Brent 2023 price forecast to $92 a barrel (bbl) from $98/bbl and its 2024 price forecast to $100/bbl from $105/bbl.

China’s consumer price index (CPI) in January increased from December, with inflation approaching the target of about 3% set by the government last year.

The latest U.S. oil inventory data this week also raised fears of a slowdown in the world’s biggest economy, with crude stocks having climbed to their highest since June 2021.

This was followed by a rise in weekly U.S. jobless claims.