It's Not Just About the Oil

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There is a human tendency – we all have it – to forget the bigger picture when a singular matter is making headlines. Whilst I obviously believe the recent news regarding oil production and pricing is BIG (this is my fourth  consecutive  article on the subject), I feel compelled to remind us all that it’s not just about the oil. Or, to paraphrase American political strategist, James Carville, “It’s about the economy, stupid.” And it’s also about politics.

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Allow me to share a few pieces of information that are not making the headlines, especially as they pertain to oil, energy, politics and the economy in the U.S. I apologize in advance if I do not wrap all these things up in a tidy little package by the end of this story, but I want to leave a little room for readers to think for themselves.

Obama and Oil

According to American Thinker, President Obama has been a “major player in the 21st century oil wars.” There are several occasions where “President Obama has interfered with free market forces,” that have directly impacted the price that Americans pay at the pump. Americans have been paying the highest prices per gallon of gasoline in history and the President has resisted or even stymied attempts to reduce U.S. dependence on foreign oil.

Obama nixed the Keystone Pipeline, at least in part, because its construction would leave Warren Buffet holding a pile of devalued Burlington Northern Rail shares (NYSE:BNI). Democratic Senator and Obama backer, Ben Nelson, owns millions of dollars of Warren Buffet’s Berkshire Hathaway stock (NYSE:BRKA). If you think it’s just about the oil, then you need to talk with James Carville, stupid.

Declining Oil and Gas Permits

Some readers are mentally associating the recent decline in the issuance of U.S. oil and gas permits with the OPEC decision last week. But those declines in permits preceded the OPEC meeting. Yes, there was a 40% decline, but that was for the entire month of November. It’s easy to consider a 40% decline as a bad omen, but when you realize that 4,250 permits were issued, it doesn’t sound quite as bad.

The Effect on Banks

When we begin to think through the entire story, at some point we have to wonder what the impact of lower oil prices will have on the banks that extend credit to oil producers. An assessment released by equity research firm Stern Agee on 02 December indicated that “oil prices would have to drop all the way to $60 per barrel and stay there for several quarters before it would lead to credit risks.” They also projected an potential increase in M&A, which I alluded to in yesterday’s article.

Behind the Scenes in Congress

There seems to be bipartisan and bicameral agreement on the passage of a  $585 billion National Defense Authorization Act. But, as is the norm, very few will be aware of the public land bills that are attached to the NDA. Those land bills include actions to “streamline oil and gas permits and move 110,000 acres of land out of federal control.” That’s probably not going to make headlines, so you can tell your friends and associates that you read it at ADVFN first.

The Icing on the Cake Is Rio Tinto

The NDA has another bill attached to it that should interest Rio Tinto (LSE:RIO) investors. This bill authorizes a land swap between the U.S. federal government and Rio Tinto that would open the way for the mining company to develop the Resolution Mine in Arizona. It would become the third-largest copper mine in the world.

Do you see what I mean? It’s not just about the oil.

 

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