Trump promises to rescue oil companies after prices go negative

New York(CNN Business) President Donald Trump wants to prevent the looming wave of bankruptcies and mass layoffs in America's beleaguered oil industry.

Trump tweeted Tuesday that he instructed the secretaries of the Energy and Treasury departments to "formulate a plan" to "make funds available" to help oil and gas companies.

No details were announced, but Trump said the goal is to ensure that "these very important companies and jobs will be secured long into the future."

The promise comes a day after US oil prices crashed into negative territory for the first time ever, the starkest evidence yet of the epic supply glut overwhelming the market during the coronavirus pandemic.

Dirt-cheap oil is likely to cause hundreds of US oil companies to go bankrupt -- especially smaller ones that took on too much debt. Countless jobs hang in the balance, including in Texas, a potential battleground state in the November election.

"We will never let the great US oil & gas industry down," the president said.

'Survive the crisis'

The American Petroleum Institute, the largest oil and gas lobby, has said it's not seeking a bailout like the one the airline industry received.

However, the industry has said it wants access to emergency lending facilities created by the federal government to help businesses ride out the crisis.

API CEO Mike Sommers told CNN International on Tuesday that the industry wants to make sure "our companies have access to the liquidity that they need to survive the crisis." He mentioned the small business lending program created by the $2 trillion stimulus package as well as credit facilities set up by the Federal Reserve in an effort to prevent a full-blown financial crisis.

US oil prices shocked the world Monday by dropping below zero -- something that has never happened since oil futures trading launched in 1983. Crude finished at -$37.63 a barrel, marking the worst day in oil history. The May oil contract climbed out of negative territory Tuesday, but just barely.

The oil crash has been driven in large part by the stunning collapse in energy demand caused by the pandemic. Highways are empty. Planes are grounded. Factories are dark.

The supply picture is also a disaster. A price war between Saudi Arabia and Russia flooded the world with cheap barrels -- at the worst possible time. And the OPEC+ production cut agreement doesn't kick in until May.

All of this has caused oil barrels to pile up at an unprecedented clip, and the world is running out of space to store it all. Storage costs have skyrocketed to such an extent that oil prices turned negative.

Here come the oil bankruptcies

Trump downplayed the negative oil price, pointing out that later-dated futures contracts are still safely in positive territory.

"It's more of a financial thing than an oil situation," Trump told reporters during a briefing Monday.

Yet other oil benchmarks are signaling deep distress as well. The June contract, which is more heavily traded, plummeted 25% to $15 a barrel. Brent crude, the world benchmark, plunged 20% to $20 a barrel.

These prices are far too low for US shale oil companies to turn a profit. Many will have to shut down production and lay off their workers. Others won't survive at all.

In a $20 oil environment, 533 US oil exploration and production companies will file for bankruptcy by the end of 2021, according to Rystad Energy. At $10, there would be more than 1,100 bankruptcies, Rystad estimates.

Time to block Saudi oil?

US Senator Kevin Cramer, a Republican from North Dakota, urged Trump on Monday to "prevent" Saudi oil tankers from unloading in the United States.

Trump suggested he's open to the idea.

"We certainly have plenty of oil. So I'll take a look at that," the president said during Monday's briefing.

Energy analysts and industry officials have warned, however, that excluding foreign oil could backfire because US refineries can't run solely on American shale oil. They require a healthy dose of heavy oil, mostly from overseas, to profitably churn out jet fuel, motor gasoline and diesel.

"One thing that we would be concerned about is any kind of blockade of oil coming into the United States," Sommers, the API CEO, said Tuesday.