Destination Tax on Crude May Benefit US Oil Companies

Heard on Bloomberg Chat: Destination Tax on Crude May Benefit US Oil Companies, Raise Prices at the Pump, Goldman Says

8:16 AM, Jan 24, 2017 — A so-called destination-based tax on oil, if implemented by the Trump administration, likely would be a boon for US oil producers while costing consumers more at the pump, Goldman Sachs said in a report on Tuesday.

Tax reform appears to be near the top of Trump’s to-do list, but a scenario of “border adjustment” in which taxes on income from imports are raised while those on exports are lowered may push West Texas Intermediate, the US benchmark, to a $10-a-barrel premium to Brent futures, the global standard, Goldman said.

That, in turn, would bump US gasoline prices by about 30 cents a gallon at the pump upon implementation, the bank said. The global LNG market also would be negatively affected. Still, there’s only a 20% chance that the Trump administration will implement a destination-based tax, but if it happens it will have an immediate impact, Goldman said.

“The medium-term impact to absolute oil prices would depend on how quickly US production reacts to higher prices vs. how quickly the rest of the world reacts to make space for higher US production,” the bank said.

If 2017-18 WTI oil prices move to $68 a barrel, a $13 premium to 2018 forecasts, the resulting investment could mean another 1.5 million barrels a day in 2018 growth. Unless the Organization of the Petroleum Exporting Countries cut output further than it already has, the action could result in oversupply and another boom-bust cycle, Goldman said.