Trump's New Idea: Pay Drillers Billions to Leave Oil in the Ground
Hey, let's bail out all the oil speculators. They voted for me, didn't they?
If that's not the general idea, then what is?
The Energy Department has drafted a plan to compensate companies for sitting on as much as 365 million barrels worth of oil reserves by effectively making that untapped crude part of the U.S. government’s emergency stockpile, said senior administration officials, who asked not to be identified describing deliberations prior to a decision and announcement.
The keep-it-in-the-ground plan would require billions of dollars in appropriations from Congress -- and the administration just recently lost a bid in Congress to spend $3 billion buying oil for the government’s strategic reserve. A deal like this could be unprecedented and reflects a Trump administration push to help domestic drillers battered by a surge of oil production and a collapse of demand tied to the coronavirus.
Analysts, including experts at Wood Mackenzie and IHS Markit, expect storage tanks to fill by summer, if not sooner. Whenever that happens, oil producers with no place to put their crude would be forced to halt production and lay off workers.
To prevent layoffs due to storage capacity filling, the proposal is to pay workers to do nothing.
The theory is the US would buy oil at these prices and profit. In practice the strategic reserves are full or nearly so.
What About Zombification?
I am sick of bailouts. Some claim it will Zombify the industry.
And whatever happened to Kudlow's idea?
In case you forgot, please consider Lower Oil Prices Are Unambiguously Good by Larry Kudlow, now Trump's top economic advisor.
Basically, the fracking revolution has delivered a powerful and positive supply shock to the economy. It means that more output increases real growth and reduces inflation for any given increase in nominal GDP — the exact opposite of what we saw in the 1970s.
Falling energy prices are so good for the economy that a new Republican Congress, in its first 90 days, should put a bill on President Obama’s desk authorizing the Keystone Pipeline, opening federal lands to energy development, and ending oil export restrictions. Totally pro-growth.
What's Larry saying now?
Art of a Failed Oil Deal
Two days ago, the Wall Street Journal bragged about Trump's fabulous deal to save the US oil industry.
Following a ridiculous spike on the announcement, oil then plunged to an 18-year low.
For details, please see The Art of a Failed Oil Deal
This new bailout proposal is an admission Trump's deal failed.
Mike "Mish" Shedlock