Waning Political Power of Oil – 5/5/16

The political power of the oil industry is deeply tied to its importance to the economy.

Historically, oil prices would take the stock market down with them, but the correlation between the two has started to breakdown during the most recent drop. The correlation, caused by the damage low oil prices does to commodity focused economies reducing foreign incomes and therefore income from foreign markets going to U.S. companies, was the major reason the Fed was hesitant to raise rates earlier in the year.

Stock oil disconnect

Yet when key oil producers failed to reach an agreement in Doha over even the most tame price control measures, U.S. stocks pushed higher.

Of course, there could be many reasons for a short-term breakdown ranging from confounding variables like the labor dispute in Qatar around the time of the meeting to pipeline disruptions in Nigeria and Iraq. The more interesting angle would be a long-term break between the two measures caused by the introduction of electric cars or increased fuel efficiency from self-driving trucks, which are expected to come into the mass market around 2020 if you’ll look at my articles from earlier this week.

A lot of the oil industry’s lobbying power comes from its seemingly essential role in fueling economic growth. Without the revenue streams, populous payrolls, and general clout that come from being the fuel of choice for transportation networks, oil companies are going to find it difficult to fight the environmental policies the Obama Administration has set into motion. Not only must oil companies deal with the slide in oil prices in the short term; they must fight off risks to traditional business models in the form of climate change, pollution and the falling costs of alternative energy and electric transportation that threaten to undercut popular support for fossil fuel use.

Although members of congress like Steve Scalise fight to persuade legislators to overturn rules related to oil work, their work being eclipsed by the uncertainty associated with the presidential candidates: Donald Trump, who has disparaged the sector as a “special interest,” and Hillary Clinton, who has promised to block offshore drilling in the Arctic and Atlantic. Obama’s influence over the energy industry exerted via executive action should be evidence enough of of that. And let’s not forget that there is still an empty seat on the Supreme Court waiting to be filled, a filling that could mean the court tips to a liberal majority for years to come.

Congressmen, like Scalise who represents areas of heavy oil and gas development and whose career was funded by energy interests, may be much needed friends in Washington for oil companies; however, they can only do so much. The House Republicans have already had trouble coordinating their own members during the current era of gridlock.

In a House where even Paul Ryan’s modest budget blue plan can’t be agreed upon, what hope do controversial ideas from Scalise, such as a non-binding resolution asserting that a carbon tax would be “detrimental” have?

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