Oil glut on coronavirus may sink Trump's 2020 message of 'energy dominance'

The price of crude took one of its most dramatic drops in history Monday after Saudi Arabia opened the spigots on its massive oil reserve amid a price war with Russia. The result wiped out of hundreds of billions of dollars in market value for the U.S. oil and gas industry - and dragged down the rest of the U.S. economy with it.

That's bad news for Trump, who is trying to reassure voters in key swing states that produce oil and gas - Colorado, Pennsylvania and Texas - that he is the best person to shepherd the U.S. economy for the next four years. Trump has gone from touting the economy as "the best it's ever been," to attempting to minimize the effects as the coronavirus spreads throughout the U.S. and markets tank on it.

A big part of the "energy dominance" agenda Trump touts on the campaign trail is making sure U.S. oil and gas exports grow. But the country's role as an energy exporter is jeopardized by the glut of oil now on the market, as well as depressed demand as the coronavirus shock winds its way through the world economy.

"If the Saudi-Russia oil price war persists," said Jason Bordoff, founding director of Columbia University's Center for Global Energy Policy, "it will cause widespread bankruptcies through the shale patch and steep declines in U.S. oil output, which would cause net oil imports in the U.S. to start rising again."

And it's yet another remarkable consequence of the rapidly spreading coronavirus that the Trump administration is struggling to contain.

The whole thing kicked off halfway around the world - and mostly due to something beyond the White House's control:

- An uneasy oil-production alliance between the Saudis and Russians broke down over the weekend after Moscow refused to cut its oil output. The kingdom wanted to work with the Russians to prop up the price per barrel as energy demand weakens because of the viral outbreak. When Russia refused, the Saudis decided to flood the market with oil themselves.

- The glut of oil sent the price of West Texas Intermediate, the U.S. benchmark, down by a quarter to $31 a barrel by the end of trading Monday. The stock value of U.S. energy firms, which can't compete with such cheap and plentiful Saudi crude, fell by 17%. According to my colleagues Steven Mufson and Will Englund, the drop in the price of oil "was the steepest since prices plunged 35 percent on Jan. 17, 1991" - the start of Operation Desert Storm in Iraq.

- Things may get worse for U.S. producers before they get better. Goldman Sachs warned that a price of $20 per barrel on the international market may be a real possibility.

Trump tweeted through the maelstrom by emphasizing just how cheap gasoline may get in the coming weeks. That's a 360 degree turn from celebrating the renaissance of energy producers who he falsely says made a remarkable comeback during his administration.

"Good for the consumer, gasoline prices coming down!" he wrote on Twitter. He also inexplicably tried to pin the oil plunge on the news media.

Drivers indeed should see some relief at the pump. The national average price for gasoline could drop by 20 to 30 cents in the next two to three weeks, according to GasBuddy, which tracks fuel prices throughout the country. "It doesn't seem like anyone is backing down, so if this continues we can see the world become floated with oil," GasBuddy's Allison Mac said. "If they can come to an agreement then we can see prices level off."

But low fuel prices aren't good for the overall U.S. economy, according to Kevin Book, who manages research at ClearView Energy. That's because of the adverse effect the price drop will have on oil and gas firms. 

The U.S. oil and gas sector will have a harder selling its product abroad - and, Book said, may have "less of a dominant market share going forward." That's not great news for the president trying to correct the U.S. trade deficit. "Coronavirus was bad enough before this," Book added.

And a drop in gasoline prices would cut both ways for Trump politically. According to ClearView Energy, residents in states that Trump won in 2016 tend to spend more on energy, but they also collectively produce most of the nation's onshore oil, gas and coal.

The oil and gas lobby tried to strike a confident tone in a phone call with reporters Monday. "There is no doubt that we are in a challenging time, but we have weathered this complicated period before as a nation and as an industry," said Mike Sommers, president of the American Petroleum Institute. But he conceded: "I don't think anybody is making any money at $30."

API said it has not yet asked for anything from the Trump administration, but the White House has prepared a list of options for aiding the ailing airline, hotel and cruise industries.