Russia rejects concerns about oil price cap effects on production

(Bloomberg) — Russia’s Energy Ministry rebuffed concerns that the oil price cap imposed by the Group of Seven nations will throw the country’s production into turmoil.

“Most markets are available for our goods at adequate market-based principles,” First Deputy Energy Minister Pavel Sorokin said in a statement. Any volatility in oil production “won’t be higher than the fluctuations in spring.”

Earlier this week, Russia’s central bank warned that the price cap and Europe’s ban are among “new economic shocks able to significantly dampen the economic activity.” Yet Sorokin disagreed, saying the cap will have only a limited impact on the economy.

“Recession risks may add volatility, but lack of oil-supply overhang on the global market and a clear deficit of some oil products, for example, diesel, are supporting prices,” Sorokin said.

Oil watchers are tracking Russian output on concern that the price cap imposed this week may force the nation — which currently accounts for roughly 10% of global crude production — to curb supply.

Russian officials have repeatedly said the country won’t sell crude to any buyer adhering to the cap, a decision that could lead to output cuts, according to Deputy Prime Minister Alexander Novak.

Russian production has fluctuated this year amid waves of energy sanctions — as well as self-sanctioning by some buyers — following the invasion of Ukraine.

In April, two months into the war, Russia was pumping an average of around 10.05 million barrels a day, down from 11.08 million a day in February, according to industry data seen by Bloomberg. Output then started to recover, reaching an eight-month high in November.

The International Energy Agency has predicted that Russia may struggle to find new markets for its oil with a European import ban now in force. The country’s production may drop by close to 2 million barrels a day by the end of March, compared with prewar levels, and average just 9.6 million barrels a day next year, the IEA said last month.