Oil rises as Russia cuts output after Western price cap

NEW YORK — Oil contracts rebounded Friday after Russia announced it would slash its crude output in response to a Western price cap that was imposed on exports after Moscow’s attack on Ukraine.

Brent, the international benchmark, and its US counterpart WTI, which had been down earlier in the day, jumped more than two per cent after Russian deputy prime minister Alexander Novak said production would be cut by 500,000 barrels per day, or five per cent of output, in March.

“Crude prices reacted positively to the news, considering that so far Russian oil production has been relatively resilient,” said UBS analyst Giovanni Staunovo.

“The move … aims to improve oil revenues by narrowing the discount of Russian oil to Brent.”

An EU-wide ban on Russia oil products — like diesel, gasoline and jet fuel — came into effect Sunday alongside a Group of Seven (G7) price cap on the same items.

That expanded on the EU embargo on seaborne oil deliveries introduced two months ago — when it also established with G7 partners a $60-dollar-per-barrel cap for Russian exports.

Oil, already bolstered by the reopening of top consumer China after lengthy pandemic restrictions, rebounded further on the news from Novak, who in charge of Moscow’s energy policy.

Russia is part of a 23-nation alliance with the Opec crude cartel that already agreed in October to reduce output by two million barrels per day until the end of this year.

Elsewhere, Wall Street extended losses at the opening bell, but both the Dow and S&P 500 finished higher, lifted in part by a surge in petroleum-linked shares like Chevron and oil services company Halliburton.

Briefing.com analyst Patrick O’Hare said investors are in “wait and see” mode ahead of next week’s consumer price index report, which will influence the outlook for future Fed interest rate hikes.

Having spent January optimistic that the days of central bank tightening would soon come to an end, traders have been brought back down to earth this month as they contemplate borrowing costs going higher and staying there longer than previously expected.

Government data showed Britain registered zero growth in the final quarter of last year, in line with expectations after shrinking 0.3 per cent in the previous three months, according to the Office for National Statistics.

The report means the British economy skirted a technical recession, defined as two straight quarters of negative growth. But the FTSE 100 still slipped 0.5 per cent after having hit record highs earlier this week.

“In reality, the nuances of whether the UK is or isn’t in a recession are likely to be lost on the majority of people, many of whom are struggling with their finances on a day-to-day basis,” said market analyst Michael Hewson at CMC Markets.

Bucking the downward stock markets trend, Tokyo rose Friday on a weaker yen, though the currency rallied after the market closed on reports that the Japanese government would nominate Kazuo Ueda to replace Haruhiko Kuroda as head of the country’s central bank.

Ueda is an economist and former member of the Band of Japan policy board. But analysts said the yen’s advance may be more to do with the fact deputy governor Masayoshi Amamiya would not take the post, which would have likely seen a continuation of the current dovish approach.

“While unexpected and a potentially hawkish development it probably doesn’t change that much from a monetary policy point of view in the short term,” said Hewson.