Schork Oil Outlook: The Govt's Ace in the Hole

Never let a serious crisis go to waste…

The president used the bully pulpit yesterday in Pittsburgh to leverage the catastrophe in the Gulf to lobby for a carbon tax and browbeat the oil and gas industry with calls to roll “back billions of dollars of tax breaks to oil companies so we can prioritize investments in clean energy research and development.”

Never mind that all U.S. companies benefit from most of these “tax breaks,” there is no time to get bogged down with details when you are demagoguing one of the most efficient industries the U.S. has ever seen.

In this vein, the president did not say whether or not he was ready to “roll back” the 45-cent per gallon tax credit on ethanol blending or rescind the 54-cent per gallon tariff on Brazilian ethanol imports… c’est la vie. Keep in mind, according to statistics from the BLS, U.S. oil and gas extraction industries employ over 160,000 Americans.

In other words, yesterday’s speech in Pittsburgh by the president was aimed at voters in November and not for the awesome task at hand. After all, with so many (high-paying) jobs hanging in the balance, Obama is not going to do (we hope) something so stupid as to jeopardize these jobs.

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Obama’s speech in Pittsburgh was disappointing, to say the least. At this stage, he chose to give a campaign speech — as opposed to demonstrating how the government was working to find a solution to the situation in the Gulf. Although, we were once again reminded that BP is going to be held accountable.

As the graph in today’s issue of The Schork Report illustrates, Obama is in a bear market. As such, the industry should brace for even more rhetoric through the summer as we approach the mid-term elections in November.

Bottom line, if the White House is intent on sticking to its guns by voluntarily shutting in GoM production, then it is willfully setting a floor in this market… or is it?

Don’t forget, the government has an ace-in-the-hole. The last time we checked there were 727 MMbbls of crude oil (i.e. ?15 months of GoM crude oil output) sitting down in the Gulf in the Strategic Petroleum Reserve. We doubt Obama will shy away from tapping these reserves. After all, he has an election in November to win.


Stephen Schork is the Editor of The Schork Report and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.