On April 20th, the value of oil futures plummeted $55.90 and began trading at a price of negative $37.63. Yes, you read that correctly, for the first time in history the value of a barrel of crude oil was negative; meaning, in theory, you could be paid $37.63 to store a barrel of crude oil because it would be cheaper for the oil companies to pay someone to purchase the oil than it would be to build new facilities to store the oil or cease drilling. While there are more factors weighing into this valuation of oil futures, such as the Coronavirus having created an "extraordinary deflationary shock to the economy, causing the idling of a vast share of the world's productive resources", the absurdity of the situation remains the same.
Courtesy: Twitter via @realDonaldTrump
Despite the alarm bells having sounded at the negative valuation of oil futures, prices rallied on April 22nd and oil returned to a positive valuation, but why? While none of the issues regarding overproduction or storage of the oil had been resolved literally overnight, Trump's announcement on Twitter of his intent to bailout the oil and gas Industry fueled its rally.
"We will never let the great U.S. Oil & Gas Industry down. 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!"
While the details of such a bailout have not been publicly discussed, there are two likely scenarios:
"It could be a traditional one, with Congress allocating money to failing oil firms. But it could also be a bailout led by the Federal Reserve. And in some ways, there has already been an indirect bailout by the Fed. On April 9, the Fed announced that, in addition to the corporate bonds it was already buying, the Fed would also buy 'junk' bonds: bonds that are seen as riskier by Wall Street ratings agencies… Energy companies make up a whopping 13 percent of the lowest-rated, riskiest kind of corporate debt. And for 10 out of the last 11 years, energy companies accounted for the majority of the junk bond debt."
In either scenario, the federal government would be allocating billions of dollars for what amounts to, in essence, a cash handout for a dying industry. Given the overwhelming bipartisan support of corporate welfare amongst both neoliberals and conservatives, the bailout would be quickly approved by Congress and serve only to delay the inevitable death of an incompetent, corrupt industry. According to Kate Aranoff of the New Republic:
"None of the options being floated by the administration will fix the lingering crisis facing America's unconventional oil and gas sector. At best, they'll stave off a reckoning for a little while longer."
And this sentiment is echoed by the Institute for Energy Economics and Financial Analysis, which has been studying trends in the heavily indebted energy sector for over a decade:
"we've got evidence that this industry has failed to produce a positive cash flow for a decade. The logic of bailing out a failing industry, that has failed even when oil prices were much higher, would be political. It would not be economic."
Proponents of the bailout will undoubtedly argue that these oil and gas companies are too big to fail and the bailout would save innumerous jobs in the industry. However, the case for the bailout ignores both the urgent need to begin transitioning toward a zero emissions economy and the failure of this sector to remain profitable for decades. Only nationalizing the energy sector will allow the government to save the jobs of countless individuals and immediately begin reducing the US's reliance on oil and gas.
Courtesy: Twitter via @sunrisemvmt
Absent federal action to nationalize these companies, it is extremely likely that private equity funds will intervene, liquidating assets and firing workers en masse to turn a profit. Public ownership of the energy sector would not only allow the government to save the jobs of the workers in the sector, but give the government leverage to immediately begin transitioning the economy away from oil and gas:
"By taking fossil fuel companies under public ownership while they're cheap to buy, the U.S. could ensure the country's energy demands are met responsibly as it transitions to a net-zero-emissions economy, without the need to appease those companies' shareholders. Instead of giving up the decision-making power such a big share purchase would ordinarily entitle them to, as in a bailout, policymakers would use their new equity stake to begin a managed decline of fossil fuels and guarantee workers full pensions and wage parity."
The time to act on nationalizing the energy sector is now. Rather than supporting the use of federal funds to provide a cash handout to the oil and gas industry, the government must move to force public ownership of these companies. This would not only save millions of jobs in the short-term, and aid these workers to find employment in the jobs created via the Green New Deal, but allow the government to continue producing oil while simultaneously building the infrastructure necessary to reach zero emissions in the near future. We must apply pressure to our representatives to act in the interests of the working class to nationalize the oil and gas industry and immediately begin transitioning to reduce carbon emissions through massive investments in mass public transportation as well as enacting the Green New Deal to build the green energy infrastructure needed to meet our zero emissions goals.