As the Covid-19 crisis grabs headlines in most of the United States, it is important to appreciate that for a good part of the U.S. oil patch, COVID-19 is second page news.  First page news is the collapse of worldwide oil prices.  The price of West Texas Intermediate Crude closed this week at $22.76 per barrel.  This is nothing short of a disaster for the U.S. petroleum industry and for a significant portion of the U.S. workforce that depends on its health.

There are many reasons for the oil price collapse.  The petroleum market is nothing if not complex.  This is not the first time that oil prices have collapsed.  Oil prices have also been known to spike.  Petroleum is an inherently volatile commodity.

But this collapse is unique.  It occurs in the context of Russia and Saudi Arabia increasing their own oil production with the clear intent of trying to drive down oil prices, at least in the short term.  Their target is U.S. petroleum producers who, through modern production technology such as fracking, have been able to put huge amounts of new petroleum on the market over the past decade.  This flood of American crude on the market has been a real economic problem for Russia, Saudi Arabia and other traditional petroleum producers, depriving them of a significant share of a market they used to own.

The Achilles Heel of U.S. petroleum producers, however, is their relatively high cost of production.  At prices much below about $40 per barrel, it does not make economic sense to produce oil in the United States.  Russia, Saudi Arabia and other major producers, whose costs of production are significantly lower, know that.  They are well aware that if they can hold prices below $40 per barrel for long enough to drive U.S. producers out of business, they can have the oil markets to themselves again, at least until U.S. production can rebuild.  In the multi-billion dollar oil industry, rebuilding can take a long, long time.

Today, the U.S. oil patch is hurting.  Thousands of Americans have been thrown out of work and face the real possibility of long term unemployment.  Oil companies and investors are losing billions of dollars holding assets that cannot be put into production.

It is tempting for electrification and environmental advocates to cheer this turn of fortune for an industry that has been traditionally seen as a hostile competitor.  But that would be a mistake.  In fact, U.S. petroleum producers and electrification and environmental advocates find themselves today in a very complimentary position.  The time has come for a Grand Bargain that will benefit all parties.

U.S. petroleum producers have a relatively short term need.  U.S. petroleum producers need a guaranteed price of domestically produced crude oil of at least $40 per barrel.  They do not need that guaranty long term.  But they desperately need that guarantee now.

Environmental and electrification advocates have a longer term need.  They need investments and price incentives that will, longer term, favor electric vehicles and clean energy over carbon-based energy.  Subsidizing the U.S. petroleum markets in the short term would be a reasonable price to pay for the right set of long-term vehicle electrification and clean energy incentives.

The crash of oil prices and the distress of the U.S. petroleum industry is an opportunity for vehicle electrification and carbon emission reduction, if electrification and environmental advocates are smart enough to recognize it.

Now is the time for a win-win solution.  We need a Grand Bargain between oil and new energy interests that will help American workers in the oil patch today, avoid a return to dependence on foreign oil, substantially increase investments in American advanced battery and electric vehicle technology, and ensure the long term reduction of carbon emissions.