The Paradox Of Bashing More Oil Drilling... Politics Of Tapping SPR? (USO, UGA)

When the President is talking about the high societal cost of rising oil prices yet simultaneously in the same speech is bashing the thought of more drilling for oil, it has to leave more than just the critics wondering… At a speech in Miami, President Obama called the cry for more drilling a mere “bumper sticker” and not a real plan for bringing down rising gas prices.  The President is focusing on an all-of-the-above strategy today which includes oil and gas as well as solar and wind.

An energy policy of 2012, or 2016 for that matter, cannot be one just bashing more progress.  Maybe there really are other forces at work in economics from Washington than basic supply and demand.  Washington does seem to have a lock on refusing to deal with the reality of inflows versus outflows or simple supply and demand.

Here is something to consider for why oil bashing today is just not a good idea.  A report from ABIresearch in London this week projects that global hybrid vehicle sales in 2020 will be 8.3 million cars.  That is projected to represent about 11% of total global auto sales that year.  So, even considering the multiple other technologies for power a car by the year 2020… Let’s say that compressed natural gas is running every single new truck engine in America and Canada by the year 2020… Does this sound like the demand for gasoline is going away any time soon?

If you use a supply and demand formula for price discovery in economics, what happens when you produce (supply) more oil?  Apparently there is an issue of math and logic that we just don’t get even taking the secondary and tertiary economic forces into consideration.

Why does it feel like as the election gets closer that tapping the strategic petroleum reserve is going to be used as a political tool.  It has happened before.

Here is the funny thing… We should probably all be calling for more and more alternative energy to be used.  Really, wind mills won’t kill the environment.  Solar panels won’t cause a meltdown.  For better or worse, nuclear energy has to have its place in the equation as well.  But… Alternative energy has to make some sort of financial sense at prevailing market prices.  And ultimately any alternative energy on a wider scale has to make financial sense on a unsibsidized basis.

As oil has risen yet again today and is making even $100 per barrel sound good, the United States Oil Fund (NYSE: USO) is up 1.8% at $41.33.  The United States Gasoline Fund LP (NYSE: UGA) is up 0.9% at $56.67 at the same time.

JON C. OGG