On Sunday, the world’s top oil producing nations agreed to cut oil production by around 10 percent, which puts them in line with the dramatic decline in demand caused by the Covid-19 pandemic. Orders to stay at home and to avoid travel have devastated oil markets. Nations with oil dependent economies – Middle-Eastern countries and Russia – are especially vulnerable. Venezuela’s already devastated oil-dependent economy, will likely suffer even greater challenges.
The deal was led by oil production leaders Saudi Arabia and Russia. The agreement involving 20 nations, reduces daily oil production by 9.7 million barrels. In contrast, experts say that oil demand is declining by 25 to 35 million barrels a day, which means the cuts likely won’t be enough to avoid the business problems associated with over-production.
Oil stocks have been collapsing for months and many producers are close to bankruptcy. Saudi Aramco decided to slash oil prices for the second month in a row.
The agreement began on Thursday with an Organization of the Petroleum Exporting Countries (OPEC) deal that included Russia. On Friday, the deal gained support from the US and the G20. Mexico sought an exemption, which threatened the deal, but the US was able to pressure Saudi Arabia to allow Mexico to cut production by a smaller margin compared to its OPEC peers, which led to the final agreement on Sunday.