Washington: US President Donald Trump has directed his administration to work on a plan to get funding to the oil and gas industries as a steep sell-off in oil futures continued. "We will never let the great US Oil & Gas Industry down," Trump tweeted on Tuesday morning, Xinhua reported.
"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 said.
At a White House press briefing on Monday, Trump said that the US was "looking to" add as much as 75 million barrels of oil to its Strategic Petroleum Reserve (SPR) "based on the record low price of oil".
US Energy Secretary Dan Brouillette told Bloomberg on Tuesday that the US government is taking "aggressive and appropriate steps" to help the oil industry during the pandemic, and he is eyeing the Federal Reserve's Main Street lending program to help oil companies.
Fuelled by pandemic-related demand shock and oversupply fears, the soon-to-expire May contract for US oil futures prices crashed to the negative territory for the first time in history on Monday.
The West Texas Intermediate (WTI) for May delivery shed $55.9, or over 305 per cent, to settle at -37.63 USD a barrel on the New York Mercantile Exchange, implying that producers would pay buyers to take oil off their hands.
The May contract managed to turn positive as of midday Tuesday. However, the most-active June contract for the US benchmark plunged more than 30 per cent to settle around $11.57 dollars a barrel.
The oil and gas industries have seen a historic sell-off amid the coronavirus pandemic. Almost 40 per cent of US oil and natural gas producers face insolvency within the year if crude prices remain near $30 a barrel, according to a recent survey by the Federal Reserve Bank of Kansas City.
"Expectations for future activity also fell to their lowest level since late 2014, as most firms do not expect energy prices to return to profitable levels this year," said Chad Wilkerson, an economist at the Federal Reserve Bank of Kansas City.
Meanwhile, the price of West Texas Intermediate (WTI) crude in the US turned positive and is currently above $10 per barrel. WTI crude is currently trading at $10.52 per barrel, recovering from the negative zone.
In a historic plunge, the May contract of WTI crude on the NYMEX fell below zero to a record low of -$40.32 per barrel on Monday. On Tuesday too, it traded below zero for a considerable duration.
Due to high supplies and lower offtake amid the Coronavirus crisis and the worldwide standstill, the US ran out of storage for the commodity posing a major challenge for the market.
Prices turning negative is an unprecedented phenomenon in the oil markets as traders paid buyers to lower their stock of oil.
Brent crude also has plunged over 27 per cent and is currently at $18.47 per barrel.
The huge sums of money traded every day in WTI futures are generally settled financially, but any contract that has not closed out after expiry is liquidated with physical delivery of oil if the concerned parties do not come to an over-the-counter agreement.
Such deliveries go to the storage hub of Cushing, Oklahoma, which is connected by pipeline to Canada, the US Midwest, West Texas and the Gulf Coast. And here the current problem lies as the Cushing storage hub is rapidly filling up and fuel consumption is halted due to the coronavirus crisis.
Crude inventory surged nearly 16 million barrels in just three weeks to reach 55 million barrels on April 10.
Analysts said the rate at which Cushing hub is filling, finding space for further storage is going to be difficult, more so for financial traders who generally do not deal in physical terms.
"Nothing much should be read into the negative May WTI futures, as the spot and June futures are in range," said Debasish Mishra, partner at Deloitte India.
The pandemic has offset the recent output cut agreement between the Organization of Petroleum Exporting Countries (OPEC) and its allies. There were hopes that agreement would stabilise oil prices, but with Covid-19 pandemic continuing, there has been a large slip-in demand that is not letting a pick up in oil prices.
The price of oil has now reached a point that it is increasingly becoming difficult for higher-cost producers to remain in operation and rather look at declaring bankruptcy. A lot of US shale producers are in deep trouble and analysts expect that low oil price for few more months will result in a spate of bankruptcies in the US.
With world demand now forecast to plunge by over 20 million barrels per day, a 30 per cent drop from last year, analysts say massive production cuts will be needed beyond just what has been agreed upon between the OPEC, Russia and other producers.