Obama's oil crackdown may hike energy prices
By: Julie Mason
Examiner White House Correspondent
June 15, 2010
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President Obama is expected to highlight his get-tough strategy for offshore oil drilling in an Oval Office address Tuesday night. But while the policy may be politically popular, it could contribute to higher gas prices in the future, analysts are warning.
The current six-month ban on drilling, part of the White House response to the BP oil spill, is just one factor affecting oil prices. Others include global demand, the strength of the dollar and hurricane season.
But some are warning that the short-term political gains Obama got from the ban could return to haunt him if gas prices start climbing again.
"We are putting off-limits roughly the same amount of oil as we import from Saudi Arabia," said James Lucier, an energy analyst at Capital Alpha Partners, referring to the second-largest source of imported oil in the United States, with more than 1 million barrels a day.
"You do the math," he said.
The administration this week is making a big push to demonstrate its command of the continuing crisis in the Gulf of Mexico.
Obama will cap a three-state swing through the region with his first national address from the Oval Office. He is expected to press BP to create an escrow account of up to $20 billion to offset damages from the spill.
"This will be an account with billions of dollars," White House deputy press secretary Bill Burton said. "The number one goal here is that all the people who are affected by BP's oil spill are made whole."
On Wednesday, the president will meet with Tony Hayward, the embattled CEO of BP who has become a symbol of the company's tone-deaf and at times inept handling of the aftermath of the April 20 accident.
Another risk for Obama lies in allying with non-BP oil companies -- much like he did with insurers and pharmaceutical companies during the health care reform push -- as he prepares to impose new regulations on the industry.
If the president appears too friendly with the oil industry and gas prices start climbing, the political damage would be greater than if he kept the industry at a distance -- and presidents always share the blame for high gas prices.
Kevin Book, an energy analyst at ClearView Energy Partners, said there are about 6 million spare barrels of oil capacity worldwide -- sufficient to handle the current demand.
But as India and China increase the demand for oil, the drilling ban's impact on oil production could come into play, Book said.
"We are going to be eliminating a minute percentage of the global oil supply but destroying half of non-OPEC growth," Book said.
The current price of a barrel of oil about $75.12, down from more than $87 in early May but up from Friday's closing price of $73.78.
Book estimated that by 2012, per-barrel prices could climb back to $85, while spare capacity could dip to 3.5 million barrels.
Lawmakers from oil industry states also are expressing alarm about how the ban could drive up gas prices.
Hearings on spill-related issues start this week on Capitol Hill, with five big oil CEOs testifying.
jmason@washingtonexaminer.com
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