By Peter Nurse
Investing.com -- Oil prices soared Friday, boosted by the news Russia plans to reduce oil production next month in response to Western price caps on the country's crude products.
By 09:15 ET (14:15 GMT), U.S. crude futures traded 0.9% higher at $78.72 a barrel, while the Brent contract rose 1.1% to $85.39 a barrel. Both contracts are now on course for weekly gains above 8%.
Deputy Prime Minister Alexander Novak announced Friday that Russia plans to cut its March oil production by 500,000 barrels a day, the equivalent of about 5% of January’s output.
Novak described the decision as “voluntary”, but there’s little doubt the Western sanctions put in place to punish Moscow for its invasion of Ukraine are having a significant impact on the Russian economy.
This move threatens to further tighten a market which is already feeling the impact of the massive earthquake in Turkey, which has impacted oil flows from Azerbaijan and Iraq.
“There are reports that exports of Azeri crude oil via the Ceyhan export terminal in Turkey are still halted and might only resume late next week,” said analysts at ING, in a note. “Exports of Azeri crude through the port are usually in the region of 600Mbbls/d, whilst Iraqi flows are more than 400Mbbls/d.”
Aside from the supply side, optimism over a demand recovery in China, the world’s largest importer of crude, has powered a lot of the week’s gains as it attempts an economic recovery after ending more than three years of stringent COVID mobility restrictions.
The International Energy Agency earlier this week reiterated its forecast for a strong recovery in Chinese demand this year, seeing the Asian economic giant delivering around half of the forecast 2 million barrels a day increase in global oil demand this year.
That said, there remain worries that economic slowdowns in the United States and Europe could hit demand as the year progresses, concerns that another weekly build in U.S. oil inventories earlier this week added to.
With this in mind, Goldman Sachs, a crude bull, lowered its Brent 2023 price forecast to $92 a barrel from $98/bbl and its 2024 price forecast to $100/bbl from $105/bbl.
The weekly Baker Hughes oil rig count and CFTC positioning data are due later in the session, as usual.