What U.S. Needs Is Long-Term Comprehensive Energy Policy

Includes: BP, COP, CVX, PBR, RIG, SLB, XOM
by: Michael Fitzsimmons

President Obama recently touted plans for higher car and truck fuel-efficiency standards. Under the changes, the overall fleet average would have to be 35.5 mpg by 2016, with passenger cars reaching 39 mpg and light trucks hitting 30 mpg.

He said:

Consumers pay less for fuel, which means less money going overseas and more money to save or spend here at home. The economy as a whole runs more efficiently by using less oil and producing less pollution. And companies like those here today have new incentives to create the technologies and the jobs that will provide smarter ways to power our vehicles.

Higher fuel-efficiency standards are obviously way overdue considering the economic, environmental, and national security issues facing the US as a result of its 65% dependence on foreign oil in an era of peak oil. However, the majority of these cars and trucks will still be running on gasoline derived from foreign oil. Although Obama believes US consumers will pay less for fuel as a result of these changes, he apparently assumes the price of oil (gasoline) won't increase more than enough to wipe out the efficiency gains. By 2016, many oil patch experts are again predicting very tight oil supplies due to the reduction in oil exploration and production budgets as a result of recent economic turmoil (in part brought about by the extremely high oil prices of 2007-2008). If oil prices merely double to $120/barrel by 2016, consumers will be paying just as much to fill up a 35.5 mpg vehicle as they are now spending to fill up a 24 mpg vehicle today. If the price of oil were to zoom to $200/barrel, well, church is out regardless. The point is, oil money will continue to poor out of the US at an ever increasing and alarming rate.

What the US really needs is a strategic long-term comprehensive energy policy centered on natural gas transportation fueled by US produced natural gas. Such a policy would reindustrialize the US, substantially reduce foreign oil imports, create good paying jobs, and put the US on track to solving its economic and environmental problems. However, Obama and Chu are "agnostic" on natural gas transportation and are big fans of "clean coal". Realistically, it appears the US will have to wait for the next administration to see robust natural gas transportation policies. Unfortunately, many believe the US doesn't have time to wait another 4 years for someone new to "get it right".

Meanwhile, China continues to scour the globe locking up oil resources in well documented deals in Russia, Brazil, Venezuela, and Africa. The US apparently pins it hopes on Canadian oil sands and the Pentagon/Petroleum relationship to enable Iraqi and Caspian Sea oil riches to reach world markets. This bottom line is that emerging oil demand in China, India, Russia, and the Middle East will mean much higher oil prices in the very near future.

US policymakers continue their attempts to fix a commodity problem (oil) with a cocktail of wrong-headed financial policies. These attempts will fail. As a result, American investors can bank on a future of much higher oil prices, a weaker currency, higher inflation, more economic deterioration, and a reduction in the standard of living in the years ahead. Under such a scenario, it makes sense to invest in gold bullion, oil and energy service stocks, and very little else. Your correspondent recommends British Petroleum (NYSE:BP), Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), ExxonMobil (NYSE:XOM), Petrobras (NYSE:PBR), Schlumberger (NYSE:SLB), and Transocean (NYSE:RIG).