"It's a supply issue", "No, it's a demand issue" - when it comes to the cause for plunging oil prices, the two camps will surely never agree on just what is causing it.
Luckily, Obama may provide just the tiebreaker.
Moments ago, Politico reported that in his final budget, Obama is set to unveil an ambitious plan for a “21st century clean transportation system.” which will be funded by a $10/barrel tax on oil.
Punishment for evil oil companies, you say? Not so fast: any government tax would be immediately passed on to those US consumers who recently had to take out a second-lien subprime loan to finish funding the purchase of that brand new Ford F-150 truck.
Obama aides told POLITICO that when he releases his final budget request next week, the president will propose more than $300 billion worth of investments over the next decade in mass transit, high-speed rail, self-driving cars, and other transportation approaches designed to reduce carbon emissions and congestion. To pay for it all, Obama will call for a $10 “fee” on every barrel of oil, a surcharge that would be paid by oil companies but would presumably be passed along to consumers.
In other words, while there may be excess supply of about 3 million barrels daily according to Saudi Arabia, suddenly demand is about to fall off a cliff as the price of oil surges thanks to Obama's latest brilliant intervention in the "free market", one which would result in a roughly 30% tax to E&P companies and a 25 cent jump in the price of a gallon of gas.
The good news: it won't pass...
There is no real chance that the Republican-controlled Congress will embrace Obama’s grand vision of climate-friendly mobility in an election year—especially after passing a long-stalled bipartisan highway bill just last year—and his aides acknowledge it’s mostly an effort to jump-start a conversation about the future of transportation.
... at least not in the current Congress. But what about next time?
By raising the specter of new taxes on fossil fuels, it could create a political quandary for Democrats. The fee could add as much as 25 cents a gallon to the cost of gasoline, and even with petroleum prices at historic lows, the proposal could be particularly awkward for Hillary Clinton, who has embraced most of Obama’s policies but has also vowed to oppose any tax hikes on families earning less than $250,000 a year.
And there you have it: what so many had expected for so long, was just proposed by the president who hopes to fill the price gap resulting from Saudi efforts to crush US shale producers, by yet another government surcharge, one which will lead to a dramatic drop in demand, and unless something drastically changes on the supply side, lead to an even greater glut in what is already record oil inventory.
But the biggest irony, of course, is that while there clearly is oversupply, what the Fed and other central banks are doing is now enabling their governments to capture every last possible "externality" and collect even more revenue on the back of disastrous monetary policy, policy which created bubbles and provided generous funding to create massive excess capacity and production of record amounts of commodities, such as in this case, oil.
So if by some miracle this tax does pass, and the price of a gallon suddenly spikes by 25 cents even as the world is literally drowning in oil, it's not just Obama's fault: thank Bernanke, and of course Janet, and all their peers who share dinner once every two months at the BIS tower in Basel,