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Report: The Trump Administration May Pay Drillers to Keep Oil in the Ground

By Matthew DiLallo – Apr 16, 2020 at 10:41AM

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The proposal would help take some of the pressure off oil prices.

The Department of Energy is considering a creative proposal to help ease the country's glut of oil, which has pushed pricing to a nearly two-decade low. It's reportedly crafting a "keep-it-in-the-ground" plan that would pay oil companies not to produce oil. The Bloomberg report said that the U.S. would essentially buy as much as 365 million barrels worth of in-the-ground oil reserves, which would count toward the country's emergency stockpile. 

The U.S. oil benchmark price, WTI, recently fell below $20 a barrel, its lowest level since 2002. Several issues are weighing on oil prices, including a massive decline in consumption due to the COVID-19 pandemic. Analysts expect global oil demand to fall by 27.6 million barrels per day (BPD), or roughly 27.6%, this month, while May demand will be about 19.3 million BPD below last year's level. All that excess oil is piling up in storage facilities around the world. 

Oil storage tanks near a pumpjack and the sun in the background.

Image source: Getty Images.

At the current rate, oil storage levels in the U.S. will hit capacity by mid-May, according to an estimate by oil pipeline giant Plains All American Pipeline (PAA -6.82%). That view comes even though some U.S. producers have started shutting in wells, and OPEC and several non-members agreed to a historic production cut of 9.7 million BPD beginning in May.

With the country running out of room to store oil, several oil producers have asked energy regulators to mandate production cuts. In addition to that, the Trump administration has proposed buying oil for the national strategic stockpile or leasing its available storage space to the industry. However, its latest proposal, which would require congressional approval, would keep oil in the ground.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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