FILe - In this April 2, 2020, file photo, President Donald Trump listens as Treasury Secretary Steven Mnuchin speaks about the coronavirus in the James Brady Press Briefing Room of the White House in Washington.  (AP Photo/Alex Brandon, File)
FILe - In this April 2, 2020, file photo, President Donald Trump listens as Treasury Secretary Steven Mnuchin speaks about the coronavirus in the James Brady Press Briefing Room of the White House in Washington. (AP Photo/Alex Brandon, File)

The economic slowdown caused by the coronavirus pandemic has led to a historic drop in demand for crude oil.

Treasury Secretary Steven Mnuchin wants to use Federal Reserve money to create a government loan program solely for big oil producers, he told media Thursday. Mnuchin is acting under the directive of Donald Trump, who instructed him and Energy Secretary Dan Brouillette to come up with a plan to save the flailing industry this week. 

Mnuchin is also weighing taking government ownership stakes in the firms in exchange for funds, and subsidizing producers not to extract oil.

“We’re looking at a lot of different options, and we have not made any conclusions,” Mnuchin said. 

The economic slowdown caused by the coronavirus pandemic has led to a historic drop in demand for crude oil. A major oil futures contract collapsed completely this week, trading under -$37 a barrel for the first time ever. When prices go below zero, companies have to pay traders to take the oil instead of the other way around. Oil prices are now down 73% from this time last year, and the surplus of oil has U.S. storage almost at capacity. 

Energy Secretary Dan Brouillette told Bloomberg TV Tuesday that “very aggressive” steps would be taken to shore up the oil industry, which might include funds earmarked for small and mid-sized businesses from the federal Main Street lending program.

Still, “they would have to fit into the normal constraints,” Mnuchin said, rejecting the notion that the central bank would loan money to riskier companies.

This isn’t the first time the Trump administration has sought to bail out the oil sector, but in the initial stimulus negotiations, Democrats in Congress tanked the request. This time around, Democrats and their allies are again raising concerns about the plan. 

“If this plan ends up using some of the $500 billion Congress allocated to the Treasury Department in the CARES Act, the Congressional Oversight Commission has oversight authority and should scrutinize the plan very carefully,” tweeted Bharat Ramamurti, who was appointed to the stimulus oversight panel by Senate Minority Leader Chuck Schumer.

Meanwhile, oil companies in Texas, Oklahoma, and North Dakota have slashed spending and shut down some of their producing wells. Since Americans are using less fossil fuels because of the shutdown, air pollution is down 30% in northeastern cities, and emissions are estimated to drop by as much as 5.5% this year—the largest annual drop on record, ever. The tar sands crude fueling the Keystone XL pipeline are too expensive to refine at these prices.

Some environmentalists worry that rock-bottom gas prices will goad Americans to buy more cars and go on more road trips, goosing up demand again. Others fear defunct oil companies will simply abandon their wells, leaving the constructs to contaminate water supplies and leak methane into the atmosphere. The Trump administration has already weakened or abolished Obama-era regulations on pollutants like the gas. And in March, the Environmental Protection Agency suspended penalties for polluters who could link violations to the pandemic.  

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Trump also renewed calls on Monday for the government to buy 75 million barrels of oil for the Strategic Petroleum Reserve, or offer part of it as storage for U.S. companies, which are running out of room. 

“This is a great time to buy oil,” the president said. “We’re going to … either ask for permission to buy it, or we’ll store it.”