Tags: sean | hyman | obama | tax | dollar | oil | crude

Obama Tax Plan May Boost Oil, Canadian Dollar

By    |   Monday, 02 May 2011 07:56 AM

The junior congressman turned “too fast” president came up with his brilliant idea (again). What is President Barack Obama pushing? He reiterated his call to end the tax breaks for the oil and natural-gas companies.

Now if someone doesn’t think his plan through … then, of course, initially it sounds good.

After all, those “greedy” oil companies are making money hand over fist so we should be able to sock it to them right? Nevermind all the years that those oil companies had to operate off of $10 and $20 oil prices.

These companies provide a service and a product. They don’t dictate the price at which the price of oil is set. The market determines that by supply/demand issues and by things that can interrupt the exportation of oil to the world. For instance, things like a civil war in Libya.

Join the 3.5% of Americans who are truly wealthy and financially secure.

So these oil companies may have the wind to their backs right now with oil heading toward $114 a barrel. But keep in mind that they still had to offer up their oil to the nations even when it fell to $33 a barrel too.

Their profits can have wild swings. It’s not all “gravy days.” But they do deal in a product that has ever-increasing demand from the increasing number of automobiles being produced each year … yet the supplies of oil are limited.

So what is Obama’s solution? Take away their tax breaks. By the way, you also take this tax break away from the rich.

But here’s how this all would shake out if Obama’s plan were to be taken seriously and go into effect.

The big oil companies will have less of an incentive to drill for oil and the wealthy will have less of an incentive to back these oil companies with money to drill too since he’s trying to cut off one of the few advantages they get for risking their money on the drilling of oil wells that may or may not pan out.

I just got through talking to an oil executive recently and he made it pretty clear that the reason the rich take chances on drilling for wells is because even if they don’t hit any oil, they still at least get the tax break from investing in the drilling process.

If you take that away, then the drilling process could either dry up or slow down. When that happens, it will lessen the supply of oil, yet the demand will continue to increase.

So while it initially sounds like Obama is “looking out for the people,” in reality he’d be more likely to be the one to be instrumental in driving up oil and natural-gas prices — and prices of gasoline at the pump too.

Obama says we need to make these changes over to clean energy and to create good paying American jobs. That’s funny … of the oil men that I know, they all get paid pretty darn well.

Also, while I agree that oil isn't the ideal energy source to use forever, we can’t switch other to other sources overnight either. That day is a lot further off than the “green crowd” likes to think.

The problem with solar energy is that is has this huge flaw — it’s called “night.” So until they can store huge sums of power during the day to last through the night, that won’t be a viable solution. And since we still struggle to make a car run really great on solar, I don’t think we’ll be running entire cities on them just yet either.

The problem with wind energy is that when the wind stops blowing, you lose energy.

Now as far as vehicles are concerned you can switch over from oil to natural gas (which is cheaper and more abundant in the U.S. It’s also cleaner). But remember, Obama’s plan is to take away tax incentives for BOTH oil and natural gas.

Besides, Obama talks about it like this really plugs a big hole in the budget. However, we will run a deficit of $1 trillion this year and next year. The tax incentives that these energy companies get amounts to about $4 billion. That’s a small sum when compared to $1 trillion. Remember, a trillion dollars is 1,000 billion dollars. So taking away just four of them doesn’t solve much. Yet it would all but guarantee prices going up at the pump.

There may come a day when this can actually happen. But that day is not today with a war in Libya and unrest all over the Middle East right now. It also can’t happen until we’re a heck of a lot closer to being able to use other energy sources as a substitute for oil. That’s still a long ways off at this point.

OK, so since this would push oil prices up even higher … then it would also influence the “oil currencies” like the Canadian dollar up at the same time too. Oil and the Canadian dollar have a very high correlation because they export so much oil to the world.

Therefore, Obama’s plan (if enacted) would push up oil prices which puts further downward pressure on our dollar while at the same time putting upward pressure on Canada’s dollar.

So keep an eye out to see if Washington ever takes his speech seriously enough. If they are ever dumb enough to make that move … then you’re going to see the buck decline even more and the Canadian dollar gain even more strength.

Thanks, Mr. President!

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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The junior congressman turned too fast president came up with his brilliant idea (again). What is President Barack Obama pushing? He reiterated his call to end the tax breaks for the oil and natural-gas companies. Now if someone doesn t think his plan through …...
Monday, 02 May 2011 07:56 AM
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