Trump Didn’t Calm the Oil Markets. Now It May Be Too Late

Stephen Cunningham, Jennifer A. Dlouhy and Nick Wadhams
Trump Didn’t Calm the Oil Markets. Now It May Be Too Late

(Bloomberg) -- When Saudi Arabia kicked off its oil-price war and triggered the worst crude crash in a generation, U.S. President Donald Trump lauded the ensuing decline in pump prices, saying it would be “like a tax cut” for Americans.

Weeks later, the crisis remains a low priority for the president, who has continually expressed his satisfaction with cheap gasoline and whose agenda has been consumed by the coronavirus pandemic itself, according to people familiar with the situation.

While Secretary of State Mike Pompeo on Wednesday took the strongest action yet to calm the market -- pressing Saudi Arabia to dial back its production surge -- the kingdom has shown no signs of slowing down.

Now, with thousands of oil jobs hanging in the balance and the U.S. shale industry in upheaval, any action by Trump himself may be too little, too late. Oil’s downturn has rapidly devolved from a simple case of too much supply to a worst-case scenario of total demand destruction -- a problem far harder to solve from the Oval Office.

“The window for Trump to pressure the Saudis and/or Russians to cut oil supply may have closed last week,” said Ellen Wald, a nonresident senior fellow at the Atlantic Council. “Now, with most of Europe, the United States and India shutting down their economies and issuing stay-at-home directives, collapsing demand is the big story.”

Pompeo’s latest intervention helped to modestly and briefly lift prices, but did nothing to change the outlook on demand, which is disintegrating at a record pace as virus-related lockdowns halt transit across the globe. At this point, higher oil prices could further imperil refiners, responsible for churning out the cheap gasoline Trump prizes.

That puts the president in a quandary: Shale producers are pushing for increasingly radical solutions to the problem -- such as a tariff on foreign oil -- as refiners beset by falling demand are scrambling to keep their plants in operation. Industry divisions have made finding a solution even more difficult for the administration, whose efforts so far been patchy as best.

While U.S. diplomats are now pressuring Saudi Arabia to restrict production, the kingdom has no intentions of changing course, at least not while Trump keeps cheering low pump prices, said people with knowledge of the matter.

Trump has yet to intervene, himself, despite saying last week that he might. A meeting of the leaders of the Group of 20 major economies on the global pandemic Thursday ended with a statement that made no reference to oil.

At the same time, the Department of Energy suspended plans to purchase 77 million barrels of U.S. crude meant to buffer the shale industry because the agency has no way to pay for it. Should funding become available -- via Congress or the agency’s own budget -- the oil buy will resume.

In the meantime, “the oversupply is snowballing much faster than any policy reactions to it,” said Bob McNally, president of Rapidan Energy Group LLC. Even a total halt to Saudi Arabia’s price war wouldn’t be enough to save the market, Goldman Sachs Group Inc. said in a note Wednesday.

The White House didn’t immediately respond to a request for comment. But in a public acknowledgment of how the virus has weighed on America’s crude demand, Trump said in a tweet late Thursday that the oil and gas industry was “under seige.”

“It will get better than ever as soon as our Country starts up again,” he said. “Vital that it does for our National Security!”

Few Options

On the demand side, the president’s options are actually looking increasingly limited. One thing he can do is stimulate the struggling economy so that businesses and consumers can better weather widespread, virus-related shutdowns.

“Dispensing $4 trillion in credit to keep businesses running is ultimately, probably the best you can do to maintain demand,” said Jamies Lucier, managing director of research firm Capital Alpha Partners LLC.

Congress is poised to pass a $2 trillion stimulus package, days after the Federal Reserve unveiled a sweeping set of economic measures this week.

Meanwhile the Saudis and Russians continue to unleash unprecedented volumes of crude into an already oversupplied market, with no signs of slowing down even as the coronavirus outbreak chips away at their customer base.

“These are very drastic times for the oil and gas industry,” said Dan Eberhart, a Trump donor and oil executive who said he’s taken part in several calls with administration officials in recent weeks. “Drastic action on the policy front is needed.”

(Updates with G20 meeting in ninth paragraph.)

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