Updates with details throughout
President Donald Trump has ordered his administration to come up with a plan to make funding available for oil and gas companies struggling from plunging demand caused by Covid-19 containment measures.
But doing so requires cooperation of Congress — and the Democrats in the US House of Representatives for weeks have been dismissive of what they see as a bailout for the oil and gas industry.
Trump said today he has instructed US energy secretary Dan Brouillette and US treasury secretary Steven Mnuchin to "formulate a plan which will make funds available" to help protect the industry and its workers.
"We will never let the great U.S. Oil & Gas Industry down," Trump said in a post on Twitter.
Brouillette today said possible help could involve finding a way for oil and gas companies to access the lending mechanisms that the US Congress created in its recent $2.2 trillion economic rescue package.
The Senate voted today to spend another $320bn to help small businesses maintain liquidity and prevent layoffs. The House is expected to approve the measure later this week.
But there is no direct mechanism to prioritize any of the economic stimulus funds for the oil industry. "This is something that we may need to go back to Congress and ask for funding," Mnuchin said today at a White House briefing, following a meeting with Brouillette and White House officials looking to implement Trump's order.
"We want to maintain our energy independence," Mnuchin said. "We are doing everything we can — obviously it is a tough situation," he said, citing the unprecedented decline in oil futures yesterday.
Nymex WTI May crude futures yesterday plunged to -$37.63/bl. As that contract expired today, prices settled at $10.01/bl, as traders tried to exit positions that would require taking physical delivery in Cushing, Oklahoma. The much more heavily traded June contract tumbled by $8.86/bl to $11.57/bl today.
Trump last night downplayed the price crash as "a financial squeeze" that would resolve once the prompt contract rolls over. But US Commodity Futures Trading Commission chairman Health Tarbert said today that the plunge in Nymex WTI May crude futures seems to have been a function of supply and demand rather than abnormal trading.
Low storage capacity, anemic demand and the impending arrival of tankers from Saudi Arabia are putting downward pressure on crude prices.
The administration once hoped to tap the funds Congress set aside for companies deemed to be of critical importance for national security to help oil companies. But a closer reading of the legislation shows that only firms providing supplies for the Defense Department and intelligence agencies would qualify for that provision, Mnuchin said.
Brouillette said the administration wanted to honor the free market system but also to support industry during "market anomalies" from Covid-19. He said the US has now contracted to store 23mn bl of crude in the US Strategic Petroleum Reserve (SPR) and is working with Treasury to extend lending to producers.
Another possible funding mechanism could be a proposal to purchase unproduced crude and count it as part of the SPR.
But those funding mechanisms could put the government in the position of lending to cash-strapped producers that were struggling before prices collapsed. That funding could also fuel concerns from Democrats that the oil sector got a "bailout" while small businesses struggle to obtain loans.
US lawmakers from oil producing states have lobbied Trump to impose restrictions or tariffs on imports of oil from Saudi Arabia and Russia, as a way to protect the US industry. But Brouillette today argued against a potential ban on crude imports, noting that some US refiners prefer to import heavy, sour crude that is not available domestically to operate profitably.
Brouillette also warned state regulators considering mandates to curb oil output against coordinating their efforts.
Wayne Christian, chairman of oil and gas regulator the Texas Railroad Commission, said today he had discussed curtailments with North Dakota and Oklahoma regulators as well as officials from Alberta, Canada's oil-rich western province.
State regulators are within their right to order such cuts in their own jurisdictions, but coordinating efforts with other states veers into "murky" legal areas of federal anti-trust laws, Brouillette said. "Whether or not they can collude to set a price is a gray legal area, a pretty murky area," Brouillette said. "It is not something most Americans would want to see here in the US."
By Chris Knight and Haik Gugarats
