How to Drive Oil to $200

Includes: DBO, OIL, USO
by: Barry Ritholtz

On last night's Kudlow & Co., I discussed how absurd US energy policy is.

The United States is heavily  dependent on fossil fuels (>80%), most of which come from places we would rather not send our money to. We consume 26% of the world's energy, with only 3% of the world’s known oil reserves.

It turns out that for the past 3 decades, we've had a George Costanza Energy policy -- every decision we have made as a country has worked to drive energy prices higher. Had we made the opposite decisions (see embedded YouTube clip above), crude oil prices would be much lower than they are today ($130.17 as I type this).   

What follows is a list of energy-related policies of the United States. On many of these, I have no opinion -- but I wanted to list as many as I could to demonstrate why oil is where it is

US Policies with an impact on Energy:   

  • Limit areas available for offshore drilling;
  • Stopped the planned rise of CAFE standards for automobiles;
  • Restricted nuclear power generation of electrical;
  • Federal Reserve policies since 2001 led to a very weak US dollar (raising oil prices);
  • Energy conservation policies? None;
  • Provided little or no incentives for hybrid automobiles;
  • No major US R&D research on energy;
  • Game changing breakthroughs over the past decades in solar, battery, or energy generation technologies? None;
  • Failed to raise efficiency standards for appliances for decades;
  • Iraq and Afghanistan Wars contributing to Middle East tensions
  • Kept CAFE standards for light trucks/SUVs much lower than autos;
  • Ridiculous corn ethanol policy (driving food prices higher as Oil rises);
  • Mass transit system is not a priority;
  • No special capital gains treatment for VC investment;
  • Failed to aggressively promote efficiency improvements for residential energy use, transmission of power, or consumption;
  • Amongst the lowest gasoline taxes in the developed world;
  • Limited hydro-electric power generation;
  • Created a tax incentive [ADCS] that encouraged purchases of large inefficient vehicles;
  • Aggressive tax incentives for battery technology development? None;
  • Exempted light trucks, SUVs, and pickups from gas-guzzler tax;
  • Discouraged clean coal, including gas liquification from coal;
  • Limited or non-existent state tax Incentives for building energy efficient homes;
  • Failed to aggressively promote compact fluorescent light bulb;
  • Allowed tax credits for residential solar power to expire;
  • Americans, on average, live further from where they work than Europeans do;
  • No special capital gains tax treatment for clean energy technology development;

And that's just off the top of my head.

Some of the above is being responded to by the private sector. With oil at $130+, there are significant price incentives for these technologies.

However, markets develop solutions only after the economics of it are feasible. This means we are starting R&D with oil at previously unthinkable levels. Imagine if we had some form of energy leadership 10 or 20 years ago when oil was $8.

What other policies does the US have that has led to higher Oil prices?