MOSCOW, February 10. /TASS/. Russia’s decision to reduce oil production in March by 0.5 million barrels per day may lead to a $3-5 per barrel increase in world oil prices and possible jumps to $95-100, as well as a decrease in the discount on Russian Urals oil, say experts interviewed by TASS.

"Russia's decision to reduce production will lead to an increase in oil prices, since this volume cannot be compensated for by other producers," the Center for Energy Development noted. According to the center's experts, the reduction mechanism will be the same as during the OPEC + deal, when Russian companies reduced production proportionally, depending on the volume of production.

"In conditions of rising demand from China and low activity of American producers, a decrease in production in Russia will support a rise in prices. At some point, we may well see even spikes above $95-100," said deputy head of the Institute of National Energy Alexander Frolov. In his opinion, such a decision will also allow unloading the transport capacities that ensure the transportation of oil by sea.

Urals risk premium and discount

As a result of the reduction of oil production in Russia, the discount on Urals oil blend may decrease, said Ronald Smith, senior analyst at BCS World of Investments.

"A decrease of 0.5 million barrels per day is significant for the global balance of supply and demand and should lead to an increase in world oil prices, say, by $3-5 per barrel, all other things being equal," Smith said.

Nevertheless, according to him, over time the market may deem further reductions in Russian production possible and thus, a risk premium would be included in world oil prices.

"Surprisingly, this could also reduce the discount on Urals, as it would reduce the supply of Russian oil to the market for those able and willing to buy it. It should also reduce demand for its transportation and reduce premiums for such carriers," he added.

What to expect from OPEC+

The decision to reduce production will not have a big impact on Russian exports, but OPEC+ may increase its production if prices rise above $90, Finam analyst Alexander Potavin believes. According to him, the reduction in production will slightly shift the balance on the oil market towards higher prices and smaller volumes, and therefore will not critically affect Russian exports.

"If in the coming months the downward trend in Russian production persists, while oil prices rise above $90 per barrel, then we can expect the OPEC+ alliance to decide on a compensatory increase in its production," he said.

The Energy Development Center believes that OPEC+ will not join the reduction.

"We doubt that OPEC+ will join the cuts as it would be disadvantageous for Saudi Arabia. The question is rather whether OPEC+ decides to increase [production] quotas later this year, or whether the quotas will remain unchanged until the end of the year, as announced after the last meeting in February," the center’s experts noted.

On production cuts

On Friday, Deputy Prime Minister Alexander Novak said Russia plans to voluntarily cut oil production by 500,000 barrels per day in March. According to him, this decision was voluntary, and there were no consultations with other countries. After his statements, the price of Brent oil jumped by more than 2.5%. As of 3:33 p.m. Moscow time, oil rose in price by 2.2% to $86.35 per barrel.

A representative of the Deputy Prime Minister said that the reduction in production will affect only oil, not gas condensate.

Meanwhile, a TASS source in the industry specified that the reduction in production will be calculated from the real volume of production, and not from Russia’s production quota under the OPEC+ deal. Under the deal, from November 2022, Russia is to produce 10.478 million barrels per day. In January 2023, as Novak said earlier, Russia was producing approximately 9.8-9.9 million barrels per day.