Russia cuts oil output in response to price caps

MOSCOW — Russia announced Friday that will cut oil production by 500,000 barrels per day next month after Western countries capped the price of its crude over its action in Ukraine.

Analysts have said one possible Russian response to the cap would be to slash production to try to raise oil prices, which could eventually flow through to higher gasoline prices at the pump as less oil makes it to the global market.

International benchmark Brent crude traded around $86 per barrel Friday afternoon.

The Group of Seven major democracies have imposed a $60-per-barrel price cap on Russian oil shipped to non-Western countries. The goal is to keep oil flowing to the world to prevent price spikes that were seen last year, while limiting Russia’s financial gains that can be used to pay for its war against Ukraine.

The cap is enforced by barring Western companies that largely control shipping and insurance services from moving oil priced above the limit.

Russia has said it will not sell oil to countries observing the cap, a moot point because Russian oil has been trading below the price ceiling recently. However, the cap, an accompanying European Union embargo on most Russian oil and lower demand for crude have meant that customers in India, Turkey and China have been able to push for substantial discounts on Russian oil.

In October, the OPEC+ alliance of oil producers, which includes Russia, tried to boost prices by reducing production by 2 million barrels per day, only to see prices fall below $80 per barrel by December.