Trump’s cure for negative oil prices is… more oil?

AS the old saying goes, the cure for low oil prices is funneling federal dollars to over-indebted producers, thereby delaying shutting in supply (or something like that). problem is Trump’s “energy dominance” mantra. For starters, the current crisis has laid bare its incoherence. Recall that America’s resource riches combined with free enterprise loosed from the shackles of regulation were supposed to give Washington free rein in global energy markets (and geopolitics). Now, less than a fortnight after the president was haggling with Saudi Arabia, Russia and Mexico to help prop up prices—and not much longer after saying the free market would take care of it—trump’s tweet hints strongly at a straight-up bailout for the industry.

What shouldn’t be lost, though, is that energy dominance itself helped tee up all of this. With its emphasis on expanding oil and gas supply as much as possible, it mirrored and encouraged the industry’s worst instincts. Frackers roughly doubled America’s share of the global oil market over the past decade. But in doing so, they destroyed untold value for investors; hence their deep unpopularity in the stock market, which long predated Covid-19.

Moreover, the tsunami of supplies helped push down oil prices. That’s great for the drivers Trump used to prioritize; less so for producers themselves, both foreign and domestic. At its heart, energy dominance is deflationary, which is lethal for an overextended sector such as this.

In that sense, Trump’s evident desire to push more funding the industry’s way—rather than, say, targeting help to furloughed rig-hands—fits right in. Trying to delay the necessary curtailment to supply (and industry restructuring) would exacerbate the underlying problem of too much supply running into too little demand. Call it energy whiplash.