Trump Proposes Executive Order To Fund Oil, Gas Companies… Which Will Depress Oil Prices More

Another industry in trouble, another government intervention, but this one will have serious negative consequences.

Amid a collapsing oil curve, and the beginning of bankruptcies across the energy states, President Trump has unveiled a new executive order to save them all:

“We will never let the great U.S. Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”

What is perhaps misunderstood once again is the ‘unseen’ – the fact that enabling these zombie firms to live longer and produce more oil will merely exacerbate the oil glut and drive prices even lower, leaving Trump open to every increasing bailouts before the bullet has to be bitten.

Remember, the only cure for low oil prices are even lower oil prices which puts the highest cost producers out of business permanently (and not just restructuring their balance sheet), and recent rig counts and production drops suggest the low prices were starting to work:

As breakevens across US oil producers are massively higher from here and so supporting this ‘broken business model’ is irrational…

Quite the perspective, all things considered.

⁦@Quillintel⁩
⁦@SoberLook⁩ pic.twitter.com/fgnNXzKhfX

— Danielle DiMartino Booth (@DiMartinoBooth) April 21, 2020

Of course it could be argued – somewhat defensively – that this is President Trump’s way to fight back against Russian and Saudi efforts to curb-stomp US shale companies.

And since MbS and Putin will see this plan for what it is, both countries will be quite happy to violate the recent historic 9.7mmb/d production cut if all it achieved was to bolster US shale.