President Obama addressed the nation on the BP oil spill and energy issues from behind his desk in the Oval Office on Tuesday night. (image: Doug Mills/The New York Times)

President Obama made a sixteen-minute speech from the Oval Office on Tuesday night that addressed the still-gushing oil leak in the Gulf of Mexico and the government’s response to the disaster (watch the full speech here and read the transcript here). The President reiterated his administration’s commitment to stopping the leak and cleaning up the oil that’s drifting toward (and has already arrived at) coastal communities: “We will fight this spill with everything we’ve got for as long as it takes.” But he offered few details of what that would entail and how much it would cost. He also assured Americans that “We will make BP pay for the damage their company has caused” and described the creation of an independently administered trust to dole out payments, but did not address the issue of the existing cap on BP’s economic liability for the damage. The speech offered very little in specific action plans, which earned some unfavorable reviews from pundits and policymakers.

The speech also included a call to action to help change the direction of America’s energy future—away from fossil fuels and toward domestically produced green fuels and other renewable energy sources. Obama repeated previous statements touting the economic benefits of a full-fledged push toward green energy:

As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs—but only if we accelerate that transition.

Like his remarks on the oil spill, however, Obama did not enumerate steps that would be taken to perform the acceleration. Though he did endorse the Waxman-Markey climate bill passed by the House of Representatives last year, calling it a “a strong and comprehensive energy and climate bill,” he did not urge the Senate to make debate and passage of the bill a higher priority.

Obama’s speech again reinforced his support for reducing US dependence on petroleum products through energy efficiency and new energy technology. He did not directly address the issue of carbon dioxide emissions, which many believe must be curbed through legislation in order to cut America’s fossil fuel “addiction.” Cap and trade and other proposals aimed at lowering emissions of carbon and greenhouse gases in general would have a direct effect on gasoline and heating oil prices. Obama’s speech did little to help or hinder the chances of the Waxman-Markey bill or any other climate and energy bill through Congress, so don’t expect your energy prices to change any time soon.

As oil continues to gush into the waters of the Gulf of Mexico, the fight over putting a price on carbon emissions and the burning of fossil fuels rages on. When and how measures to curb emissions might be implemented is no clearer now than it was before the President’s speech. The best advice for heating oil users and all other Americans is to invest in energy efficiency as soon as possible to guarantee energy savings no matter which directions the political winds are blowing.

The projected size and location of the Deepwater Horizon oil spill slick as of the night of Friday April 30. (image: nyt.com)

As the Deepwater Horizon oil spill in the Gulf of Mexico expands and its threat to coastal environments worsens, one market expert says it still has not had an effect on oil prices. MarketWatch reported on Friday that Rick Mueller, director of oil markets at Energy Security Analysis Inc., said the spill would probably not affect oil prices because the leaking oil field “was not a production field and it was not a big field to begin with.”

The New York Times cited unconfirmed reports that the now-massive oil slick had begun to reach the Louisiana coast on Friday afternoon. The spill, designated an event “of national significance” by President Obama, now poses a huge threat to coastal ecosystems in the Gulf, as well as fishing industries in the affected areas. Government officials and Gulf Coast residents are bracing for what could be the worst environmental disaster in years, if not decades.

The environmental and economic devastation of the spill could have major political fallout that shapes future US energy policy. A shift in public opinion away for supporting offshore drilling could put the brakes on a federal plan to expand drilling allowances and build support for the development on biodiesel and other green energy sources.

President Obama tours the POET biorefinery in Macon, MO. (image: nytimes.com)

President Barack Obama visited the POET biorefinery in Macon, MO on Wednesday to emphasize his commitment to making biofuels a key component of America’s future energy mix, and make the US “first when it comes to biodiesel and the technologies that are being developed in places like POET.” In his speech, Obama hailed biofuels’ advantages as a clean, renewable, and domestic energy source that could create jobs and lead to energy independence.

As the Kansas City Star reported, Obama focused as much on economic recovery as he did on environment and energy. He pledged to follow through on the plan laid out by the Renewable Fuels Standard, which calls for US production of biofuels to triple by 2022, and said, “There shouldn’t be any doubt that renewable, homegrown fuels are a key part of our strategy for a clean energy future.”

In his remarks (full text available at the White House website),Obama made it clear that the development of biofuels was just one part of a broader strategy to create jobs and develop clean, domestic energy:

We began early last year by making the largest investment in clean energy in our nation’s history. It’s an investment that we expect will create or save up to 700,000 jobs across America by the end of 2012—jobs manufacturing next-generation batteries for next-generation vehicles; jobs upgrading a smarter, stronger power grid; jobs doubling the capacity to generate renewable energy from sources like sun and wind and biofuels, just like you do here.

POET produces more than one quarter of the country’s ethanol each year, and is a leader in cellulosic ethanol, which uses the non-edible parts of plants such as corn cobs. Even though Obama toured an ethanol biorefinery and made his remarks while a front-end loader filled with corn stood next to him, the president was intent on endorsing biofuels in general, not just ethanol (to the dismay of ethanol advocates). The ethanol industry may have wished that Obama had offered more specific support for the corn-based fuel, but his inclusive endorsement of all biofuels could be good news for heating oil users.

While gasoline is blended with ethanol, home heating oil is blended with biodiesel, which can be produced from a wide variety of feedstocks. If the government backs the production of biodiesel from algae, waste cooking oil, or other sources—and not just ethanol production—heating oil users are more likely to have access to a clean and affordable heating fuel.

Watch the full video of President Obama’s remarks at the POET biorefinery below.

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The Deepwater Horizon oil platform shortly before it sank last week. (image: green.autoblog.com)

On Tuesday, the oil drilling rig Deepwater Horizon exploded in the Gulf of Mexico, killing 11 workers and injuring several others. After the explosion, the rig was engulfed by a crude oil-fueled blaze until it sank a day later. The sinking of the drilling platform caused the pipeline that had connected it to the the sea floor to rupture, opening up an oil leak that is currently estimated to be gushing 42,000 gallons (1,000 barrels) of crude per day into the waters of the Gulf.

On top of the heavy human cost of the incident is the threat of widespread environmental damage, which is growing by the minute as a massive oil slick spreads toward land. By Monday afternoon, the size of the oil slick was estimated at 1,800 square miles, the New York Times reported. Although no environmental effects have yet been observed, sea flora and fauna could soon be harmed by the presence of the oil in the water. Environmental damage could worsen as the oil slick moves into coastal ecosystems, which the US Coast Guard estimated would not happen for at least 36 hours, according to the Wall Street Journal. BP, the oil company that commissioned the sunken platform, is charged with stopping the leak and cleaning up the spilled oil, both of which could take months.

The growing oil slick on the surface above the leak. (wsj.com)

Observers of oil markets are accustomed to seeing events that have only tenuous connection to the oil industry, some occurring in far-flung places, have a significant impact on oil prices. However, this disaster, despite the potential environmental damage and massive cleanup costs that will be shouldered by BP, has so far had no effect on oil prices. Crude and heating oil prices fell on Monday, but analysts attributed the drop to economic factors unrelated to the oil spill.

Because of the tiny amount of oil produced by one drilling rig in relation to world supply, the sudden loss of one rig’s oil is not enough to affect the price of crude oil on global markets.

The explosion and oil spill could have an indirect effect on US energy policy, however, as opponents of offshore drilling will have fresh evidence of the risks incurred by each new offshore rig. According to the Washington Post, White House spokesman Robert Gibbs told reporters on Friday that the incident did not lead the president to rethink his recent decision to open up large swaths of coastal waters to oil drilling. However, with images of the burning platform and huge oil slick fresh in their minds, citizens and members of Congress may think twice before supporting any expansion of offshore drilling in the near future.

As the use of derivatives expanded beyond their use by businesses hedging risk, derivative speculators built up a massive house of cards that collapsed in 2008 and brought the global economy down with it. (image: dailymail.co.uk)

In the debate over financial regulation that’s currently heating up in Washington, the investment products known as derivatives have taken center stage. Derivatives constitute a broad and widely traded category of investments that are based on (derived from) other products that could be anything from heating oil futures contracts to home loans. Because mortgage-based derivatives were the main culprits in causing the global economic downturn, they have become prime targets of legislators for tighter regulation that proponents believe will help avert future economic catastrophes.

On April 15, Arkansas senator Blanche Lincoln (D) introduced a bill that proposes major increases in the transparency and oversight of derivatives trading that could help reduce the volatility of oil prices.

Last week, President Obama offered general support for the derivative-related provisions of Lincoln’s bill, but also acknowledged that derivatives do play an important role in the US economy by allowing end users of products like heating oil to hedge their financial risks.

Writing for the New York Daily News on Monday, investment manager Peter Siris expanded on Obama’s acknowledgment in an article titled “Derivatives for dummies: Thousands have bought them without even realizing it.” His central point is that, in their simplest form, derivatives are common and vital financial products that allow businesses like heating oil dealers to protect themselves against the rapidly changing market price of a product. In that context, derivatives amount to a prudent investment that serves as an insurance policy against rapid and unforeseen price increases. The kind of financial security provided by derivatives hedging allows heating oil dealers to stay in business and offer consumers price-lock contracts and other payment options.

The problem with derivatives in the recent economic meltdown, Siris explains, was that they became too complex and too intertwined with other financial products (mostly bad mortgages). As derivatives became more complex, they multiplied and became more popular, occupying an increasingly outsized portion of the world financial system:

Here’s a frame of reference: The total value of all goods and services produced globally is estimated at $70 trillion. The value of all the financial assets in the world is about $150 trillion. The value of all the derivatives in the world is about $700 trillion. That means financial institutions are betting 10 times the value of the world’s economic output and more than four times the value of the world’s assets on these insurance policies.

All of that buying and selling of derivatives by speculators—investors who are not businesses protecting themselves, but financial players seeking profit—grew into an elaborate and extremely unstable house of cards. When the piece of that house’s foundation made up of bad mortgages was removed, the entire structure collapsed in a heap, ushering in the global recession.

Siris’s point is an important one: derivatives have their place—it is in industries like heating oil where they can help keep retailers in business and prices steady. For this reason, they simply cannot be banned outright. But they can be regulated in a way that will make them more transparent and straightforward to prevent them from causing another global economic meltdown.

Armed with this knowledge, heating oil consumers can think for themselves and avoid being swayed by extremists on either side of the debate that call derivatives all good or all bad. And with the battle over financial regulation and derivatives getting more contentious every day, it’s a safe bet that those extremists will very soon increase the volume and frequency of their attacks in the fight for headlines.

President Obama speaking at New York’s Cooper Union on Thursday. (image: Reuters via wsj.com)

In a speech at Cooper Union in downtown New York on Thursday, President Obama briefly touched on petroleum-dependent businesses’ participation in financial markets. In the middle portion of a speech calling for comprehensive reform to protect Americans against reckless activity on Wall Street, Obama used businesses hedging oil prices to moderate costs as example of fair and honest use of commodities markets:

So I want to reiterate: there is a legitimate role for these financial instruments in our economy. They help allay risk and spur investment. And there are a great many companies that use these instruments to that end—managing exposure to fluctuating prices, currencies, and markets. A business might hedge against rising oil prices, for example, by buying a financial product to secure stable fuel costs. That’s how markets are supposed to work. The problem is, these markets operated in the shadows of our economy, invisible to regulators and to the public. Reckless practices were rampant. Risks accrued until they threatened our entire financial system.

End users of petroleum products, as hedgers, serve as the counterparts to speculators, who have no interest in the physical products and trade futures or options contracts in pursuit of financial gain. Heating oil dealers often act as hedgers to protect themselves from unpredictable swings in heating oil prices. Obama’s comments allude to speculators using oil (and other commodities) as part of opaque investment activities that contributed to the financial collapse of 2008.

Watch the full speech on the Fox News website. The reference to oil hedging begins at the 13:54 mark.