On Thursday afternoon, President Obama visited Cushing, Oklahoma, one of the largest oil hubs in the nation as part of a multi-stop tour where he introduced his “all-of-the-above” energy solution. While Obama intends to ramp up investment in renewable energy sources like solar energy and wind power, Obama’s plan also extends to increasing oil and natural gas production.
Now for anyone holding oilfield service or refinery stocks, this is big news, so I’m going to take a moment and run down the speech as well as summarize some of the commentary on Obama’s plan.
Obama began his speech by listing off a number of accomplishments his administration has achieved in the past few years. According to the President:
- America is producing more oil today than at any time in the last eight years.
- The administration has opened up millions of acres for gas and oil exploration across 23 states.
- The White House has opened up more than 75% of its offshore oil resources.
President Obama reassured the people of Cushing that his focus was to increase oil production and alternative energy. Obama also mentioned that his administration was in the process of speeding up the approval process for the southern leg of the proposed Keystone pipeline. Proposed by TransCanada, the pipeline would theoretically transport more oil from Cushing to refineries on the Gulf Coast to relieve the glut in Oklahoma. As for the much-contested northern portion of the pipeline, which would connect oil reserves between the U.S. and Canada, the President said that they were willing to review future permits.
According to President Obama, one of the biggest problems facing the U.S. is dependence on foreign oil, especially from the Middle East. He attributes rising gas prices to uncertainty in the Middle East and argues that by ramping up domestic oil production, the U.S. can decrease its reliance on other countries, and in turn, U.S. gas prices will not be subject to the sociopolitical problems of other countries. President Obama also wants to increase domestic production of oil to keep energy jobs in the U.S. as opposed to abroad.
Finally, Obama’s plan includes regulating the fuel efficiency of vehicles. According to Obama, this is an initiative that is 30-years overdue and should put America “on the path to greater energy independence.” President Obama points out that in 2011 the United States imported 1 million fewer barrels per day compared with 2010.
If President Obama’s “all-of-the-above” strategy works, the United States will use its history of innovation to increase oil production, increasing energy efficiency, and decreasing the country’s reliance on foreign oil.
Of course, not everyone is pleased with what President Obama had to say, especially from the right. What some Republicans are saying is that Obama’s pledge to fast track the southern leg of the pipeline is somewhat of a moot point because TransCanada already received approval to build the southern stretch months ago. Critics say that the approval would have been obtained with or without the President, so he is simply taking credit for something outside of his control.
Also, there are economists from the Classical camp who say that Obama’s crusade to remove $4 billion in annual subsidies and tax breaks to oil companies is a bad move. According to Forbes economist Louis Woodhill, Obama should not favor the wind and solar energy companies because they are just not profitable. “Obama sees no difference between allowing a profitable company to keep some of its own money and giving taxpayer money to unprofitable ventures.”
And, the fact remains that there is no guarantee that Obama’s energy policy will lower gasoline prices–an issue that is on the mind of every American driver. On Wednesday, the Energy Information Administration (EIA) announced that crude oil inventories declined 1.2 millions barrels in the week ending March 16. The other big surprise was that gasoline inventories also declined, so prices at the pump should continue to rise as long as inventories stay tight.
All-in-all, it’s too soon to tell whether President Obama’s ambitions will gain traction in Congress, so there’s now way to determine the impact on energy stocks. However, it’s critical that we all stay on top of the discussions being made on the Hill so that we can plan accordingly. I’ll continue to monitor the headlines and will report any significant developments on the energy front.
In the meantime, have a wonderful weekend!