President Trump is calling on the Energy Department to find more places to store oil, in the wake of rock-bottom prices and an ensuing economic collapse of the sector itself.
Driving the news: Trump’s comments came Friday during the televised portion of a meeting he hosted with industry CEOs to discuss ways to help the sector. It’s reeling from a historic drop-off in demand with the world shutting down to slow the spread of the coronavirus.
Where it stands: Energy Secretary Dan Brouillette told Trump and oil-industry executives in the meeting that the department has offered capacity in the nation’s Strategic Petroleum Reserve of up to 30 million barrels of oil for struggling companies to store product.
- While Trump touted how cheap oil is right now, Brouillette revealed that companies may have to pay the government to store their oil.
- These are called negative prices, when the seller pays the buyer to take the product.
Repeatedly referring to how affordable oil is right now, Trump called on Brouillette to find more places to store the oil, implying he had something specific in mind but didn’t elaborate.
- “Check out other areas where you can store oil,” Trump said. “There are some very big ones, bigger than what we have now. At these prices, you should do it. Fill it up, right?”
- A request for additional comment to a White House spokesman wasn’t immediately returned.
One level deeper: Trump also ruled out (for now) imposing tariffs on oil imports, an ask some domestic-based oil companies are asking for. "Am I thinking about doing it as of this moment? No. It's certainly a tool in the toolbox," Trump said at a press briefing later Friday. "Ultimately the marketplace will take care of it," Trump said, indicating he's unlikely to take sweeping action.
The big picture: Storing more oil and most other options Trump has at his disposal are limited and the industry is divided on how aggressively the government should intervene. The real make-or-break moment comes Monday, when the OPEC+ group is set to meet remotely to discuss the possibility of steeply cutting production.
Reality check: The main problem plaguing the sector is the massive drop-off in demand. Analysts say as much as 25 million barrels of oil a day — a quarter of global oil demand — will evaporate this month.
- If (and it's a big if) Saudi Arabia, other members of the Organization of Petroleum-Exporting Countries and Russia — collectively known as OPEC+ — come together Monday to cut up to 15 million barrels a day, it will put a small bandaid on a giant demand hole.
Between the lines: The deal would make a historically terrible problem for the sector a little less terrible because it would stave off prices from collapsing even more once inventories, places to store oil, fill up in the coming weeks.
- “It does slow the filling of inventories, which is important for the near-term, because overflowing inventories mean catastrophically low prices,” said Kevin Book, managing director of research firm ClearView Energy Partners. It also “sends the market a signal for the future that there’s a way to work off humongous inventories when the demand recovers.”
Flashback: Unlike most other sectors of the economy before the pandemic, the oil industry was already struggling, due to the persistent problem of too much oil, even with demand humming along like normal.
The bottom line: When the industry emerges from this historic crisis, fewer companies will exist and they will still be in a place of relative struggle with low prices.