Trump Calls For Bailing Out The Oil Industry

SK Ashby
Written by SK Ashby

Trump has already effectively tried to bail out the oil industry by embracing a scheme to artificially raise prices by cutting output, but now he's calling for a more formal bailout.

Trump took to Twitter this morning where he made an announcement that I suspect was news to all parties involved.

“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!” Trump tweeted Tuesday morning, as West Texas Intermediate crude futures for May delivery again traded in negative territory.

The president’s tweet did not specify how much money would be made available, or which oil and gas companies would be eligible to receive it. The White House did not immediately respond to a request for comment on the president’s directive.

If Trump's tweet that he ordered various secretaries to do something was not the first time they heard they've been ordered to do something, I'll eat my hat. But I digress.

It's not clear to me if the Department of Energy even has the authority to throw cash at oil companies without an act of Congress, but an actual bailout would be a slightly more honest way of doing what Trump has already done.

Trump's scheme involving Russia, Saudi Arabia, and a handful of American producers is far more dubious than a straight up bailout would have been. But in either case, it involves a transfer of wealth from average Americans to oil companies either through an increase in prices or a direct cash payment. The latter is slightly more progressive simply because those who fill up their gas tank the most are the working class who already pay more in taxes as a proportion of their income than the rich do. Raising gas prices on the working class is a regressive tax.

With all of that said, a bailout would not fix the fundamental problem that consumer demand won't return to normal anytime soon even if stay-at-home orders are slowly relaxed. Demand will be depressed for months to come as consumers will still be weary of traveling farther than to their place of work or grocery store.

Demand for oil will eventually increase again, but it may literally never return to its previous highs as there will undoubtedly be plenty of incentives not to use oil when this is over. At the very least, investments in fossil fuel are going to appear far more financially dubious going forward. Becoming so worthless that it trades in negative territory is not something that can be shrugged off by investment funds and their managers even under our current, unique circumstances.

Would you want to be invested in oil knowing this could all happen again someday? Would you want to make brand new investments in oil when this is over knowing that we're eventually going to move away from it forever? No one invests in coal anymore for the same reasons.