Russian Production Cut Signals Difficulties Placing Barrels

Crude markets have rallied on Novak’s earlier comments about a 500,000bpd Russian crude production cut in March.

• Russian barrels being placed into Asia have initially defied predictions of a decline after sanctions came into place Dec 5 as China and particularly India stepped in – albeit at significant discounts to global benchmarks, but a production cut signals Russia’s difficulty in doing this longer term.
• Novak said in his statement "As of today, we are fully selling the entire volume of oil produced, however, as stated earlier, we will not sell oil to those who directly or indirectly adhere to the principles of the 'price cap',"
• "In this regard, Russia will voluntarily reduce production by 500,000 barrels per day in March. This will contribute to the restoration of market relations". he added.
• His comments indicate that some buyers may be looking to abide by price caps to gain access to western shipping and insurance services. Russia may also be struggling to maintain crude deliveries into Asia with growing numbers of vessels leaving without a destination – awaiting a buyer and being forced into floating storage, taking up effective capacity of Russia’s so called ‘ghost fleet’.
• Russian barrels from Barents and Black Sea ports are also shuttling using ship-to-ship transfers off Kalamata and Ceuta to load crude onto VLCC’s bound for China. Trafigura co-head of trading, Ben Luckock said these methods were building inefficiencies into Russia’s export methods that were likely to worsen with time – especially if the fleet begins to build its floating storage levels.
• Brent APR 23 up 2.6% at 86.67$/bbl
• WTI MAR 23 up 2.5% at 80.04$/bbl
• WTI-Brent down -0.08$/bbl at -6.44$/bbl
• Brent APR 23-MAY 23 up 0.05$/bbl at 0.49$/bbl
• Brent JUN 23-DEC 23 up 0.37$/bbl at 3.32$/bbl