The Energy Report for Thursday, June 10, 2010

BP Means Bad Policy

Bashing BP is in. While Obama is trying to figure out whose "ass to kick", politicians are acting like jilted lovers falling all over themselves to try to lash out and hurt BP while our global reputation as the world's best and most fair place to do business is at risk. This goes far beyond BP and what they could have or should have to avoid this disaster or how they are handling the aftermath but really comes down to the credibility of this country in the global market place.

BP stock got hammered again in part because the Obama administration wants to make BP cover all the damages from the Gulf oil spill even the millions of dollars in salaries of the laid off oil industry workers let go because of their Federal moratorium on deepwater drilling.

This is a concept that has no basis in our rule of law and is trying to change the law after the fact. In other words, they want BP to pay for their own bad policy. At the same time members of Congress are trying to retroactively lift the 75 million dollar liability cap on punitive damages and possibly have no cap at all.

Yet revenge and emotion always makes bad policy. The truth is that eliminating or raising the liability cap for oil companies will cost us thousands of jobs in the oil industry. Small oil companies and drillers will go out of business and insurance rates for companies will skyrocket faster than health care costs. US domestic oil and gas production would fall, maybe dramatically. It would add dollars to the cost of a gallon of gasoline and higher costs would prolong the recession.

Higher energy costs would hurt small businesses across the country and would make us more dependent on foreign oil. This could spread to other industries as higher energy costs could put us at an economic disadvantage with our foreign trading partners.

This rush to kill BP and try to bankrupt them is counterproductive. Who do we want to take BP's place in the Gulf? China? Russia? I think that BP will pay the dividend and they will survive this onslaught. Yet as angry as we are at BP we have to remember that this country is a rule of law and a place where the world can do business where the rules are fair and do not change after the fact. While the Obama administration wants to "kick some ass" the truth is that just lashing out like a scorned lover could do more long-term damage to our people and economy then this oil spill ever will.

As far as BP going bankrupt, I believe that the company said it best when they said that it has, "significant capacity and flexibility" to deal with all the costs of this spill. BP faces this situation as a strong company. Under the current trading environment, we are generating significant additional cash flow."

The Financial Times reports that the attacks on BP are causing a concern in Britain. The FT says, "UK industry expressed alarm yesterday at the "inappropriate" and increasingly aggressive rhetoric being deployed against BP by Barack Obama, US president, warning that the attacks on the oil company could damage transatlantic relations. The concerns come amid mounting political unease in Britain that attacks on BP over its handling of the Gulf of Mexico oil spill are being dictated by the politics of November's crucial mid-term elections in the US, rather than normal regulatory considerations. David Cameron, the prime minister, and will "inevitably" raise the BP issue in a phone call with Mr. Obama scheduled for this weekend, officials said.

The references to "British Petroleum" - which has not been the company's name since 1998 - by senior US politicians have fuelled fears of a backlash against UK groups in the US." The FT quotes Richard Lambert, director-general of the CBI, the employers' organization as saying that the presidential attack was "obviously a matter of concern - politicians getting heavily involved in business in this way always is".

He suggested the White House strategy was misplaced, stating that "apart from anything else, BP is a vital part of the US energy infrastructure. So the US has an interest in the welfare of BP, as much as the rest of the world does."

At the same time this high political rhetoric may be in part raising the cost of oil. As the Obama administration lashes and slashes out it seems that this unstable environment and unstable leadership is already hurting Americans that are already hurting from joblessness and the rescission. His ban on shallow water drilling shows the President stroll does not grasp all the complexities of the spill situation.

Obama's volatile statements and "kicking ass" sounds good but unless you are the Blackhawks (Way to go Hawks!!) "kicking the ass" of BP will just add more pain to people who are already hurting. It seems that the Obama administration is over shooting and is failing miserably to show the type of level headed, forward thinking leadership that is required to handle this disaster.

His lack of experience is showing and if he doesn't stop leading with his emotions he may do irreparable harm to our business relationships with our valued allies. We want the world to feel that America is the best place in the world to do business.

We know the best place to get your business news is the Fox Business Network where you can see me every day. Oil is on key resistance overnight if the bulls push a bit higher they could extend the run to mid $77 handle. Oil inventories not worth really mentioning though did lend some support.

What is news is that the market seems to not be overly concerned with Iranian sanctions and more focused on BP. Make sure you are getting our tide points buy calling me at 800-935-6487 or by emailing me at . Congratulations to the 2010 Stanley Cup Champion Chicago Blackhawks!

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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