Trump focuses on benefits of oil price plunge despite US shale turmoil

US President Donald Trump signaled Monday that he sees plunging global oil prices as a positive for US consumers in this election year, without mentioning the financial turmoil unfolding in the US shale patch.

"It does not appear that the administration's first instincts are to protect the oil and gas industry," said Sarah Ladislaw, director of the Center for Strategic & International Studies' energy security and climate change program.

Trump also blamed Monday's sinking equities on the oil market, after OPEC+ cooperation between Saudi Arabia and Russia broke apart Friday.

"Good for consumer, gasoline prices [are] coming down!" Trump tweeted. "Saudi Arabia and Russia are arguing over the price and flow of oil."

The Trump administration frequently points to booming US oil and gas production and surging energy exports. But with US drillers under dire financial pressure because of demand destruction from the coronavirus and now an oil price collapse, the White House has few options to support the industry.

"Prices are going to be so much lower than breakeven," said Amy Myers Jaffe, director of the Council on Foreign Relations' energy security program. "Even if they expand the intangible drilling credit or lower royalties, it seems very marginal to me. I don't see that the administration can do much to change the economics."

DELAYED SPR SALE?

One policy option being considered is delaying a sale of up to 12 million barrels of crude from the Strategic Petroleum Reserve, sources said Monday. Bids for that sale are due Tuesday afternoon, but sources said some US Department of Energy officials are debating the logic of holding a sale immediately after a historic drop in oil prices and then releasing up to 12 million barrels of crude onto an already oversupplied market.

A DOE official said Monday morning that no decision had been made.

The SPR sale is offering: up to 6 million barrels of sour crude from Bryan Mound SPR site in Texas; up to 3 million barrels of sour crude from the Big Hill SPR site in Texas; and up to 3 million barrels of sour crude from the West Hackberry SPR site in Louisiana. The crude is scheduled for delivery throughout April and May.

The sale was approved by Congress as part of the Bipartisan Budget Act of 2015 to fund an SPR modernization program, paying for upgrades to the nearly 43-year-old government crude oil reserve. That budget bill allowed the DOE to sell up to $2 billion worth of SPR crude to fund the modernization with sales from fiscal 2017 through fiscal 2020.

In three modernization sales so far, DOE has sold 15.22 million barrels of crude for about $970.8 million, getting the DOE an average of about $63.80/b over the three sales. For its sale this week of up to 12 million barrels of sour crude, DOE would be expected to get about $360 million at current oil prices of about $30/b.

Such a sale would not only have DOE selling crude at roughly half the price it did in three previous sales, but it would leave the agency roughly $670 million short of the $2 billion it was authorized to raise in SPR sales through fiscal 2020 for the modernization program.

By law, DOE could delay the sale until later this fiscal year in anticipation of higher oil prices, sources said.

The sale comes as the US is considering the future of the SPR amid record growth in US oil production and a global supply glut.

Australia will sign an agreement with the US this week to store potentially millions of barrels of crude in the SPR to meet International Energy Agency obligations, according to Angus Taylor, Australia's energy minister. A DOE official recently told S&P Global Platts that the US government is considering leasing storage to other foreign governments as well.

"Leasing SPR to Australia, instead of selling it, was at least a good step in the right direction," Jaffe said. "They need to suspend all SPR sales into the market if for no other reason so as not to sell at the bottom."

As of Friday, the US SPR held 635 million barrels of crude, including 384.7 million barrels of sour crude and 250.3 million barrels of sweet crude.

Ladislaw said a delay of the SPR sale "might help but really just on the margins."

"I can't think of a targeted step they could take to help those industries without the help of Congress," she said. "They could sanction other producers, but I'm not sure even that would help given the state of Venezuela and Iran production. On same level the rate cuts could help make more capital available, but the market would have to feel good about the oil sector, and I'm not sure that's the case right now. "