OPINION:
A drop in the price of life’s necessities is a surprise boon for consumers, but it can mean a bust for producers. The global oil market has gone over a precipice — partly owing to the effects of the coronavirus pandemic and partly due to a price war — and the U.S. oil industry is caught in the crossfire. Unless the disruptions subside, and quickly, President Trump should not hesitate to take steps to ensure the health of an enterprise that isn’t simply vital to the American economy, but its national security.
Mr. Trump reassured executives from Exxon-Mobil, Chevron, Phillips 66 and other oil companies at the White House on Friday that he is monitoring their industry’s health during these tumultuous times. “We’ll work this out and we’ll get our energy business back,” he said during a White House briefing. “I’m with you 1,000%. It’s a great business, it’s a very vital business.”
The president is counting on combatants in the current oil war, Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin, to declare a truce and agree to reduce production sufficiently to absorb the global oversupply that has crashed prices. In the meantime, Treasury Secretary Steven Mnuchin has said U.S. oil producers suffering from rock-bottom prices will be eligible for help contained in the $2.2 trillion coronavirus relief program recently signed into law.
The average cost of a gallon of regular unleaded gasoline stands at a jaw-dropping $1.93, 48 cents less than a month ago and 81 cents less than a year ago. The slide has followed the crash of crude oil prices, which fell from $63 a barrel on Jan. 6 to $20 on March 30 before rebounding to around $27. American drivers would be giggling all the way to the pump — except for the fact they’re home by the tens of millions, riding the couch amid the pandemic lockdown, rather than behind the wheel. Ditto for drivers the world over.
Idle vehicles mean reduced demand and a glut of supply. February saw a global decline in demand of 4.2 million barrels per day, according to the International Energy Agency. Most of the fall-off occurred in China, which imposed a strict quarantine around Hubei, a province of 60 million where the virus originated. The drop in oil use the current pandemic has caused could result in the first year of declining demand since 2009, says the agency.
During a time of slowing consumption, U.S. crude production has been going gangbusters, thanks to the 21st century efficiencies boosted by fracking innovations. Outpacing top global producers Saudi Arabia and Russia in 2019, the United States became a net exporter of both oil and natural gas for the first time since 1953. At the last check of its dipstick, the nation’s oil reserves rose in one week by 13.8 million barrels, enough to fill Washington, D.C.’s Tidal Basin, twice. Storage space is running out, and producers can’t simply pour out the excess, which is what Midwestern dairy farmers are doing with milk they can no longer sell to the nation’s shuttered school systems.
Even before the coronavirus contagion caused fossil-fuel use to stall worldwide, crude prices had been trending gently downward. Oil revenue losses prompted the state-owned Saudi and Russian oil industries to boost oil revenue by opening their spigots and flooding the market. America’s free-market producers can’t afford to do the same for long, and Wednesday’s bankruptcy filing by North Dakota’s Whiting Petroleum Corp. could represent a canary in the pipeline.
Watching the fortunes of smaller, independent oil producers crumble, former Energy Secretary Rick Perry has suggested that the president direct refineries to only process domestic crude for a period of 60 to 90 days as a temporary measure benefit to Americans companies. So far, Mr. Trump has shunned such protectionist oil measures, including the imposition of tariffs on foreign oil to give domestic producers a competitive advantage. In normal times, the fewer marketplace distortions, the better.
The current combination of virus pandemic and geopolitical gamesmanship, though, mustn’t be allowed to turn back the clock to the time when the nation was dependent on foreign oil. During this era of extraordinary uncertainty, the president should be prepared to take steps necessary to power the great American economic engine. Oil is the fuel of both prosperity and security.
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