Russia's Deputy Prime Minister Alexander Novak announced on May 4 that Russia is abiding by its voluntary pledge to cut oil output by 500,000 barrels per day (bpd) from February until the end of the year.

Russia is part of the OPEC+ group of oil-producing countries that announced a combined reduction of more than 1 million bpd last month, in a surprise decision. Oil prices surged over 8 percent to $83.95 a barrel after the announcement, the highest rise in more than a year.

"Taking into account the unfounded speculation in the press regarding oil production levels, Russia reaffirms its full commitment to and implementation of voluntary oil production cut levels," Novak said in a statement.

"The target level of voluntary production cuts is 500,000 bpd from the February level until the end of 2023. Monitoring will be carried out according to independent sources,'' added Novak.

He also said a two-thirds reduction in Russia's oil pipeline exports to the European Union was only partially compensated by sea-borne exports.

 

Where are oil prices headed?


Saudi Arabia-OPEC's dominant member, said that the oil output reduction was a ‘’precautionary' move and aimed at market stability. However, analysts reckon that this may not be the sole reason. A production cut means a that tighter market and higher oil prices will arrive sooner.

The recent cut brings the total volume of cuts by OPEC+ to 3.66 million bpd, according to Reuters, equal to 3.7 per cent of global demand. The April 2023 cut is the second jolt from OPEC+ in the space of six months, after a cut of 2 million bpd was announced in October 2022.

With the supply cut and demand recovery in China, analysts predict that oil prices may again surge to the levels of $100 per barrel, last seen in July 2022. In March, benchmark Brent crude fell to $72 per barrel, the lowest in 15 months, due to the collapse of major global banks including Silicon Valley Bank and Credit Suisse. 

With the prospect of $100 a barrel back in view, after it had dropped to $70, the decrease in output has brought back worries of global inflation. It also poses risks of aggressive monetary tightening by central banks pushing the world economy into recession.