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With This Reduction of Oil Production Ordered by the Russian President, Oil Prices Fell in Recent Weeks, Pressured by Fears of Global Economic Slowdown and Demand, But May Increase Again Soon
The President of Russia, Vladimir Putin, declared that he will reduce Russian oil production as early as 2023, due to a price ceiling imposed on Russian oil by Europe and other Western countries, according to Deputy Prime Minister Alexander Novak. With this reduction in oil, Russia is expected to produce about 500,000 to 700,000 barrels per day next year.
According to Novak, this reduction in oil production, from 500,000 to 700,000 barrels per day, would be approximately 5 to 7% of total production.
The motivation for President Vladimir Putin’s decision came after the 27 EU (European Union) countries, the G7, and Australia announced a price ceiling on oil coming from Russia, transported by ship.
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RUSSIAN OIL PRICE CEILING
Restrictions on Russian Products
With the imposition by Western countries, only oil sold by Moscow at a price equal to or less than US$ 60 will continue to be delivered to European countries, the G7, and Australia.
The goal of the price ceiling on oil is to target the profits that Moscow was making from the acquisition of hydrocarbons and, directly, to hinder the military intervention in Ukraine by President Vladimir Putin.
The “ban” on purchasing products from Vladimir Putin’s Russia doesn’t stop there; Western companies are also restricted from providing certain services that allow for the transportation of oil, such as shipping or insurance.
Oil Prices Going Up and Down
Due to President Vladimir Putin’s imposition to reduce oil production, oil prices have plummeted in recent weeks, amid a possible slowdown in the global economy due to demand for oil. However, this price stability may not last long, as the trend is expected to be an increase in price in the coming months, according to Rabobank in a report.
The phenomenon described above is called backwardation, which means that the future price of the product is lower than the current price of the same product. In a situation like this, investments in the sector are dissuaded in order to increase supply, which happened in the oil sector.
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