Russia May Reduce Oil Production by 5% to 7%

In response to price caps on its crude oil and refined products, Russia may reduce oil production by 5% to 7% in early 2023 and stop exports to nations that support them, Deputy Prime Minister Alexander Novak said on state television on Friday.

Novak described the Russian response to the West’s price caps as a result of Moscow’s invasion of Ukraine for the first time, estimating that the reductions could amount to 500,000–700,000 barrels per day (bpd).

The European Union’s embargo on importing Russian crude by sea and similar promises made by Britain, Canada, Japan, the United States, the G7 countries, and Australia introduced a $60 per barrel price cap starting on December 5. Russian oil sales have suffered as a result of the sanctions, which have had a significant impact on state budget receipts.

There were deeper discounts on Urals crude this month. Moreover, top buyer India purchased barrels for significantly less than the $60 price cap.

Asian Spot Liquefied Natural Gas Prices

Following declines in European gas prices as milder winter temperatures reduced demand for heating, Asian spot LNG prices fell this week for the first time in more than a month.

According to industry sources, the average LNG price for February deliveries to northeast Asia was $31 per million British thermal units (mmBtu), a decrease of $7 or 18.4% from the previous week.

As regional heating demand expectations decreased due to milder temperatures, Asian prices fell alongside much larger drops in the Dutch Title Transfer Facility (TTF), Europe’s primary natural gas futures market, according to Ryhana Rasidi, a gas and LNG analyst at data analytics company Kpler.

Prices in Asia dropped less, probably because northeast Asia should experience below-normal temperatures for the rest of the year.

For cargoes delivered in February on an ex-ship (DES) basis, S&P Global Commodity Insights estimated the daily Northwest Europe LNG Marker price benchmark in Europe at $27.069 per mmBtu on December 22. This price represents a discount of $2.025 per mmBtu from the February gas price at the Dutch TTF hub.

Gas supply-wise, Europe’s markets have fared reasonably well through the first half of the winter. LNG has continued to flow steadily into the region, and storage appears to be on track to reach a respectable level by 2023.

After the supply halt following Russia’s invasion of Ukraine, Europe sought alternatives to Russian piped gas, including importing more LNG.

Two LNG terminals were opened in Germany in November, and by the end of 2023, six floating storage and regasification units (FSRUs) spread across four sites should be operational.

The energy ministers of the EU reached an agreement on a gas price cap to reduce prices, which have risen sharply this year and increased energy costs and inflation.