Trump announces rescue of oil companies after sinking oil

Laziness or tradition? The regulatory body for the oil and gas sector in Texas is called the Railroad Commission, and, in fact, it has not regulated the railroads since 2005. The Commission has met this Tuesday, and has decided not to touch the 'hot potato' of pumping crude oil. in that state, which, if it were an independent country, would be the fifth largest producer in the world , ahead of Iraq, Iran, Kuwait or the Emirates.

Because the Commission has the power to limit oil production, something it has not done since 1972, in the old days before OPEC oil shocks. It is a controversial issue, with small producers - especially those who mine crude through fracking, a controversial method of injecting thousands of tons of water, sand and chemicals and splitting rock - on the brink of collapse, and the big ones preparing for a wave of mergers.

The Railroad Commission has dropped the matter for its May meeting. It is not just an ideological debate on state intervention in the market. It is also a matter of lobbying. Large US oil companies, such as ExxonMobil, Chevron and Conoco - are not in favor of aid or production limitation because they obtain most of their crude oil by conventional methods, not by 'fracking', and therefore prefer that its weakest competitors fall to gain market share.

The key is that 'fracking' has never generated positive cash-flows, so it has depended on Wall Street financing. At a time when the price of oil is far below its extraction cost, these companies, which pump expensive oil, are with the rope around their necks.

There is also another factor. If an oil well is closed and stops producing, it may be damaged, preventing it from being operational once it is reopened. This especially affects 'fracking', where it is necessary to 'puncture' more often in order to maintain yields over time.

And, meanwhile, Donald Trump has entered the fray with a 'tweet' in which he states that "We will never let the Great Oil and Gas Industry fall!" And declares that "I have instructed the Secretary of Energy and the Secretary of the Treasury to formulate a plan so that these very important companies and jobs are insured in the future. " Trump is close to the entire oil sector.

In fact, the largest fracking businessman, Harold Hamm, rejected his offer to be Energy Secretary when he won the elections. Hamm's fortune has fallen from $ 17.2 billion (€ 15.9 billion) in 2018 to $ 3 billion (2.76 billion rivers) as the price plummeted. Only on February 27, when the current collapse in the price of a barrel began, Hamm was 1 billion dollars (920 million euros) poorer. Or slimmer, rich, depending on how you look at it.

Trump's statements are difficult to interpret. On the one hand, the President has an interest in saving oil, since he concentrates on states that vote for it, such as Texas and North Dakota. Not only that: In recent years, Republican control of Texas has weakened, and, while still strong, Trump does not want to take risks there in the November election. In fact, the president already launched a well-publicized rescue of the oil sector in March, when he announced that the United States Strategic Oil Reserve was going to be filled with crude produced in the country. That would mean adding about 77 million barrels, at a rate of around 700,000 a day. It is only 5% of US production. But at least it would help the sector.

The problem, as with almost all of Trump's ads, is that facts and rhetoric don't go together. Congress did not approve the 3,000 million dollars (2,760 million euros) necessary to carry out the purchase, so the plan immediately ran aground. On Tuesday, Trump again promised to buy 75 million barrels for the Strategic Petroleum Reserve. There is also another question. The oil that accumulates in the Reserve is of a different type from that produced by most of the wells in the United States.

More than 1,000 bankruptcies in two years

The public bailout comes after various analyst reports yesterday warned of a wave of bankruptcies in the US over low oil prices. According to consultancy Rystad Energy, the sieve could exceed a thousand before the end of 2021 if prices are sustained below $ 10. Yesterday, the price of the WTI barrel price - a reference in the US - left the negative terrain and returned to exceed 5 dollars, a reference that the market still considers insufficient to guarantee the continuity of companies engaged in production using fracking techniques.

But the business impact is not limited to the Texas sands. Rystad Energy predicts a bleeding in the entire oil supply chain and defaults on interest and debt by a third of the oil service companies that support large energy companies in their oil extraction tasks. From drilling groups to those dedicated to the maintenance or measurement of seismic activities, among others.

And behind these companies are enormous amounts of debt with financial institutions and markets, which is another of the major concerns of the US president, along with the loss of jobs. Only the North American production companies that have fallen since 2015 have already left $ 130 billion in unpaid debt. In the last week of March, according to the statistics compiled by the Haynes and Boone's law firm, four energy companies activated the bankruptcy process anticipating a black April for the sector

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