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The Trump Administration to Craft a Rescue Plan for the U.S. Oil and Gas Industry

By Matthew DiLallo - Apr 21, 2020 at 10:13AM

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The President plans to make funds available to the beleaguered sector.

President Trump has instructed the Secretaries of Energy and the Treasury to work together and formulate a plan to save the U.S. oil and gas industry, according to a tweet earlier today. He wants to make funds available to the beaten-down sector so that companies can preserve jobs. 

A one-two punch clobbered the U.S. oil patch this year as plunging demand due to the COVID-19 outbreak came at the onset of a price war between Saudi Arabia and Russia. Those issues are causing oil to pile up in storage. There's so much excess crude sloshing around the market right now that the country is quickly running out of storage space. That pushed crude prices into negative territory yesterday as traders are paying others to take oil off their hands.

A drilling rig surrounded by oil pumps at sunset.

Image source: Getty Images.

With wells unprofitable, producers are shutting them down. One of North Dakota's leading producers Continental Resources (CLR -1.43%), for example, will slash its output by 30% in April and May because of sinking demand.

The Trump administration has already floated a variety of proposals to help shore up the country's energy industry. These options have included filling up the remaining capacity of the strategic petroleum reverse through either direct purchase of oil or leasing that space to others for storage as well as potentially paying producers to keep oil underground

Meanwhile, the U.S. energy sector has lobbied the Federal Reserve to change the terms of a $600 billion lending facility so that oil and gas companies can participate. The industry desperately needs access to financing given that banks and investors won't provide capital amid cratering crude prices and the sector's long-standing financial struggles. The credit freeze already forced one producer to file for bankruptcy while several others hired advisors to restructure their debt

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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