Hours after United States benchmark crude prices stunned even hardened oil veterans with a sudden, sharp crash into negative territory, President Donald Trump said his administration will look at a proposal to block Saudi Arabian oil shipments to the US to help buoy the US shale oil industry against an unprecedented rout that threatens its survival.
“Well, I’ll look at it,” Trump told reporters at a daily news conference after he was asked about requests by some Republican legislators to block the shipments under his executive authority.
The May contract for West Texas Intermediate (WTI) crude went into a death spiral on Monday, plunging more than 300 percent with prices turning negative. At its lowest point, the May WTI contract touched -$40.32 before settling at -$37.63.
The contract is due to expire on Tuesday. Negative prices signals that traders are willing to pay to have oil taken off their hands.
Trump described the historic fall in oil prices as more of a short term financial squeeze on traders and said his administration would like to take advantage of historically low prices to top up the nation’s Strategic Petroleum Reserves.
The Department of Energy is in the process of leasing some of the roughly 77 million barrels of available space in the Reserve to US oil companies to help them deal with the dearth of commercial storage as the coronavirus outbreak crushes domestic energy demand.
The coronavirus pandemic has decimated oil demand globally as businesses shutter, borders close, travel is disrupted and consumers go into lockdown. Into this maelstrom, Saudi Arabia unleashed an oil-price war last month after it failed to convince Russia to join it in an aggressive output cut.
Despite an intervention by Trump that paved the way for an historic production-cut agreement of 9.7 million barrel a day between Saudi Arabia-led OPEC (The Organization of the Petroleum Exporting Countries) and its allies led by Russia, a tsunami of crude continues to overwhelm markets.
This is acutely felt by higher-cost US shale oil producers who are running out of places to store crude with oil storage tanks at the hub in Cushing, Oklahoma nearing capacity.
On Monday, US Senator Kevin Cramer of North Dakota – a state highly dependent on revenues from oil production – called on Trump to stop Saudi oil tankers from unloading crude on US shores.
In a statement, Cramer said: “We cannot allow Saudi Arabia to flood the market, especially given our storage capacity dwindling. Right now, the highest number of Saudi oil tankers in years is on its way to our shores.”