Could Obama Push Crude Oil to $300 Per Barrel?

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". . .higher energy prices are coming—eventually. The politicians are going to make it so."

John Maynard Keynes, one of the most influential and controversial economists in history, . . .was prone to change his mind. He was often openly accused of being inconsistent. One day he was approached about his repeated inconsistencies. His simple response was, "When the facts change, I change my mind. What do you do, sir?"

An investor who refuses to change when the facts change will lose out big. When the facts change, you've got to change with them. Right now, the facts are changing—fast.

. . .President Obama's budget proposal is changing everything. Now "Change we can believe in" is heading for the energy industry.

The budget proposal Obama submitted reveals a lot about who the winners and losers will be. One of the big losers will be oil companies. According to the Houston Chronicle, "President Obama proposed a $31.5 billion tax increase on oil and gas producers."

It's not an upfront tax, though. It's all in the form of increased fees and accounting rules changes. Included among the proposals to squeeze $30 billion out of the oil industry are:
  • Establishing a new excise tax on Gulf of Mexico resources
  • Creating new fees for permitting process of development projects on federal land
  • Eliminating tax deductions for repair, site prep, and transportation costs of drilling
There are five or six more, which will have a significant impact on the domestic oil industry. These changes will each have price tags of a few hundred million dollars for oil companies. When added up, the eventual cost is around $30 billion.

The impact will be much greater than that though. Oil projects will less economical; oil companies' won't have cash available to invest; and the oil industry, which has already ground to a halt, will slow even further.

Thus, over the long-term, it looks like alternative energy is on its way to becoming economically viable again. From a short-term perspective, I don't see much changing. There are just too many roadblocks for oil to significantly head higher.

Rest assured, though, higher energy prices are coming—eventually. The politicians are going to make it so. So, I'm going to heed Keynes' wise words when it comes to the energy market. The facts have changed and I'm willing to change with them. That is, of course, when the time is right.

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