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Like many others, the oil and gas industry is now reeling from the dramatic economic impacts of COVID-19. But unlike most other industries, the oil and gas market’s downturn is rooted in factors separate from the pandemic – the current oil glut and price drop has been years in the making. The Trump Administration has given special attention to the oil and gas industry and economic relief for it, but its proposals and actions to date fail to recognize the deeper causes of drillers’ current distress.

Recent actions by the Federal Reserve to expand the qualifications for its Main Street Lending Program were at least in part designed to bail out oil and gas companies and their backers, though in a less obvious way.

The sector’s balance sheets were keeling over, long before the coronavirus contagion swept the globe. For years, oil and gas companies had financed the U.S. shale revolution by drilling deep on debt. When the price of oil dropped in late 2014 and 2015, oil companies and their backers began to buckle. At the time, domestic exploration and development companies’ debt topped $200 billion. In 2015 and 2016, more than 100 firms filed for bankruptcy. Banks who had supported the companies during the boom were hurting too, even those as big as JPMorgan Chase.

After easing a bit in 2017 and 2018, persistent low global prices brought on by rising production and stagnant demand began to bite again. By the summer of 2019, headlines noting hard times ahead were emerging. By the end of the year, oil and gas bankruptcies had surged by more than 50 percent compared to 2018.

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