LONDON—Oil prices jumped more than 2 percent 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 $1.71, or 2.02 percent, to $86.21 a barrel by 1148 GMT. U.S. West Texas Intermediate (WTI) crude futures were up $1.57, or 2.01 percent, at $79.63.
Both contracts rose by more than $2 earlier in the session and were on course for weekly gains above 8 percent.
Russia plans to reduce its crude oil production in March by 500,000 barrels per day (bpd), or about 5 percent 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.
“We believe the decision (to cut oil production) is not completely a voluntary one ... as market factors likely forced the Russian side to make this decision,” said UBS analyst Giovanni Staunovo.
Russia’s output last year defied predictions of a decline, but its oil sales will prove more difficult in the face of the new western sanctions.
Limited tanker availability could also hinder Russia’s efforts to divert refined oil to other markets, Staunovo added.
The announcement reversed bearish sentiment that characterized trade on Thursday and Friday morning against a backdrop of weak demand data from China and recession fears in the United States. It also follows a rise in weekly U.S. jobless claims and higher oil inventories.
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.
Hedge fund manager Pierre Andurand remains bullish, however, telling the Financial Times that oil could hit $140/bbl later in 2023 on a Chinese demand recovery.
