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Oil business seen in strong position with Trump

Oil business seen in strong position with Trump thumbnail

Big Oil could be in a unique position to protect its interests against a Republican proposal to tax imports, given that President-elect Donald Trump‘s cabinet is studded with oil champions sensitive to the risk of higher gasoline prices.

Trump’s emerging leadership includes Exxon Mobil Corp Chief Executive Officer Rex Tillerson as secretary of state, former Texas Governor Rick Perry as energy secretary and Oklahoma Attorney General Scott Pruitt as Environmental Protection Agency administrator.

Trump himself has made no secret of his support for the energy sector.

And in Congress, both Republicans and Democrats have close industry ties, including House tax panel chairman Kevin Brady, a Texas Republican whose district takes in the northern Houston suburbs.

House Republicans want to adopt a sweeping tax reform that would sharply reduce tax rates for corporations and end the taxation of U.S. corporate overseas profits.

But a provision known as border adjustability is stirring up controversy. Though intended to boost U.S. manufacturing by exempting export revenues from tax, the provision worries some industries because it would also tax imports.

Because U.S. oil refiners import about half the crude oil they use to make gasoline, diesel and other products, analysts say the change could lead to higher gasoline prices and potentially undermine economic growth.

Integrated oil companies such as Exxon, Chevron Corp , BP Plc , Royal Dutch Shell Plc and ConocoPhillips could also be hit, depending on whether they are net importers.

But the industry’s allies would likely move to soften any rough edges, analysts say.

“I don’t see this mix of leadership figures in the House, Senate and the White House, doing something that has the effect of raising gasoline prices,” said Peter Cohn, an energy analyst with Height Securities, a Washington-based investment firm.

The danger is that a move to protect the oil refiners could open the door to assistance for other industries, including retailers and automakers, which would also face higher costs if no longer able to deduct the cost of imports from their taxable income.

Such a knock-on effect could prevent border adjustability from raising an expected $1 trillion in revenues to help pay for lower tax rates over the next decade.

“We hope that raising these concerns early in the process will allow members of Congress to consider the issues carefully,” Chet Thompson, president of the American Fuel and Petrochemical Manufacturers trade group, said in a statement.

Brady said earlier this month that his committee was sensitive to the impact on specific businesses and “listening very closely to how we can make sure we smooth that out.”

Moreover, some economists dismiss industry worries about higher import costs, saying the dollar’s value would rise in response to such sweeping tax changes and ultimately reduce the cost of imports. Currency markets would adjust to higher oil prices by lowering the dollar value of crude, they predict.

“This argument by the oil industry is, frankly, all wrong,” said Douglas Holtz-Eakin, former director of the nonpartisan Congressional Budget Office, who now heads the American Action Forum think tank.

“Refiners are going to be basically held harmless. They’ll have a lower dollar price of oil. Net cost is the same. And they go about their business. I’m unsympathetic,” he added.

Height Securities’ Cohn said Trump and his advisers could look for ways to soften any blow to refiners and their customers: “Trump doesn’t want to have refineries closing on his watch.”

Oil already benefits from several tax code provisions in place for decades that would be eliminated under the House Republican plan. But they stand to gain more than they will lose.

For instance, an existing tax deduction for domestic production lets oil producers shave down their corporate tax rate to 32 percent from the top headline rate of 35 percent. Under the congressional Republicans’ plan, the corporate rate would be cut to 20 percent; under Trump’s plan, to 15 percent.

Similarly, companies that now write off intangible drilling costs or get a tax allowance for asset depletion would be able to immediately expense capital investments.

Then there is a tax credit oil companies claim for fees from foreign countries. Congressional Republicans would eliminate foreign taxes altogether, while Trump would maintain taxation at a substantially lower rate.

reuters



18 Comments on "Oil business seen in strong position with Trump"

  1. shortonoil on Wed, 4th Jan 2017 7:45 am 

    “given that President-elect Donald Trump‘s cabinet is studded with oil champions sensitive to the risk of higher gasoline prices.”

    “Because U.S. oil refiners import about half the crude oil they use to make gasoline, diesel and other products, analysts say the change could lead to higher gasoline prices and potentially undermine economic growth.”

    The US imports about 6 million barrels per day, and exports about 6 million barrels per day. A tariff on imported crude would have almost no effect on US finished fuel prices because that tariff would be paid by the producer, not the end consumer in the US. Its impact would be to reduce the revenue of foreign producers, not increase the price in the US. Because the world is over supplied prices would not go up, the income of foreign producers would go down. The tariff would be a strong support for the US petroleum industry.

    Apparently Reuters thinks that is a bad idea?

  2. Dredd on Wed, 4th Jan 2017 9:32 am 

    “Refiners are going to be basically held harmless” – Roto Reuters

    Got religion (Doing The Alt-Right Thing – Mithraism – 4) ?

  3. joe on Wed, 4th Jan 2017 11:53 am 

    This admin is more oily than Cheneys, I mean Bush 2s.

  4. Kenz300 on Wed, 4th Jan 2017 12:08 pm 

    The oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them. Climate Change is real. It will impact all of us.

    It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies.

    The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them.

  5. rockman on Wed, 4th Jan 2017 12:38 pm 

    “A tariff on imported crude would have almost no effect on US finished fuel prices because that tariff would be paid by the producer, not the end consumer in the US”. As long as tariffs and taxes are paid by all companies they are passed on to the consumers. Always has worked that way and always will. As long as competition is the same for all companies they’ll pass any cost increase on to the consumers: works that way with every product…not just fossil fuels.

  6. rockman on Wed, 4th Jan 2017 1:18 pm 

    It never ceases to amaze me to see how many folks childishly believe the POTUS, any POTUS, has much impact on the fossil fuel industry. All one has to do is study a bit of history. Though the Rockman avoids making predictions but will make an exception this time: IMHO it is extremely unlikely the energy industry will fair as well under a President Trump as it did under President Obama, the “greenest” POTUS in history. On a personal note the Rockman has done much better financially under President Obama then under any POTUS during his 40 year career. And doubts it will come even close to those gains over the next 4 years under a President Trump. IOW who expects the price of oil to go from $50/bbl to $100+/bbl in the next 4 years? The rig count to increase to 1,800? Will the US still be importing the same reduced volume of oil in 4 years? Will the production of US oil/NG increase in the next 4 years instead following the current decreasing trend? And if it does would that be something to blame or applaud a President Trump for? Not an easy answer, is it? LOL.

    And we won’t have to wait 4 years to see if this prediction holds: if we don’t see a substantial turn around begin in the next 24 months we won’t see an meaningful improvement in the oil patch at the end of the next 4 years.

    So the Rockman has put his ass on the line. Now time for those predicting happy days for the oil patch under a President Trump then under President Obama to ball up and make some specific predictions instead of tossing out those bitchy qualitative bullshit comments. LOL.

  7. Boat on Wed, 4th Jan 2017 1:55 pm 

    Short,

    Go to the eia’s homepage. In the search window type in “imports exports”. You will find with a little research the US net imports a net 5 Mbpd average the last couple years. Although the last set of numbers has net imports at 3.8. Gross imports are close to 10 Mbpd. Your claims of 6 Mbpd imported and exported show your just a cut and paste shrill from others disinformation.

    Clog,

    Sigh, I guess we will have the black prez to thank for dramatically cutting US dependence on oil during his term. Not to mention turning the US into a net nat gas producer. Not to mention a coal killing King. Trump will never be able to match his energy legacy. He did all that while setting in place the eventual demise of FF. The next prez should be Japanese. They as a whole assimilate better and thrive In a country of immigrants.

    Sigh, I guess we have to blame

  8. Nony on Wed, 4th Jan 2017 8:05 pm 

    The US oil industry grew because of world prices and because of innovation. Not because of Obama policies. If you look at Federal land production versus state and private, it was night and day. Federal production is down. State and private up through the roof (2008-205).

    Trump will be mildly more pro oil (but still held back by the Left leaning bureaucracy). But World prices are predicted to be flat in the mid 50s for oil. This means oil will be pretty flat in production also. Still, better with Trump than with a Donk.

  9. Boat on Wed, 4th Jan 2017 9:46 pm 

    Nony,

    Or you could say geopolitics kept OPEC down causing the high prices. Better with Trump? Time will tell. In the US the gov is not responsible for oil production. Dem’s would argue there was plenty oil to be drilled. When prices were high they were proven right. Now that prices are climbing production is on the rebound.

  10. GregT on Wed, 4th Jan 2017 10:53 pm 

    @Boat,

    “Or you could say geopolitics kept OPEC down causing the high prices.”

    Or you could say conventional oil production peaked in or around 2005. Just as Hubbert predicted that it would.

  11. rockman on Thu, 5th Jan 2017 8:31 am 

    Nony – “The US oil industry grew…Not because of Obama policies.” Which is exactly the point I made isn’t it? Do you think the oil patch will look as good (let alone better) under President Trump because of his policies as the best years had under President Obama? As I’ve said before I find that very unlikely. Which also implies that folks who say the oil patch will be doing much better in the future BECAUSE we’ll have a new POTUS are full of sh*t. LOL.

  12. Nony on Thu, 5th Jan 2017 10:05 am 

    Rockman, I think world price is a more powerful factor than presidential policies. This is obvious from what we’ve seen.

    That said, policies can still have an impact. Consider for instance what has been done to Alaska (ANWR off limits, shitty Federal permitting, pipeline getting in danger of closing from low supply). Or look at what has been done to New York gas production with the fracking ban (Susquehanna PA is on the border of NY and is the most prolific shale gas county in the country).

    Just because effect A is bigger than effect B, doesn’t mean effect B has no impact. This should be obvious mathematically and logically.

  13. Outcast_Searcher on Thu, 5th Jan 2017 11:21 am 

    Kenz repeats the same endless manta, with very little substance.

    Yes, in a few decades or so, EV’s will likely largely supplant ICE’s.

    In the mean time, auto companies have a LOT of incentive to build ICE’s. Currently about 99% of the market share, in fact

    If EV’s and even PHEV’s manage to get to say 15% of market share in the next decade, then you BEGIN to have a point, Ken.

    And don’t misunderstand me. I’m all for EV’s at realistic prices with competitive performance and support (like sufficient convenient charging). I plan to own a highly efficient PHEV in the mean time.

    But I’m realistic about how long and difficult the transition will be. Chanting wishful thinking that ICE’s will magically go away won’t change that.

    Politicians could greatly help push PHEV’s and EV’s with a massive transport fuels tax. They seem to have near ZERO interest in doing that in the US.

  14. Kenz300 on Thu, 5th Jan 2017 11:56 am 

    Every major auto maker is scheduled to produce a long range fully electric vehicle in the next year or two.

    Even diesel polluting VW has announced that it will be producing a variety of fully electric vehicles.

    As battery costs continue to fall, range continues to increase.

    Charging points are expanding making it more convenient to own an electric vehicle.

    Buses, electric bicycles and delivery trucks are now being produced that are fully electric. Even John Deere has demonstrated fully electric farm equipment.

    We are nearing the tipping point when fully electric vehicles become cheaper than ICE vehicles. They are already cheaper to operate.

  15. Anonymous on Thu, 5th Jan 2017 12:38 pm 

    Give it a rest already kenzbot. Its 2017, and you still haven’t managed to do anything other than repeat the same horsehsit of yours over and over.

  16. onlooker on Thu, 5th Jan 2017 2:05 pm 

    Yes Kenzbot. You sound like a broken record. If Renewable Alternatives ever save the day we will elect you President until then try not to be so predictable.

  17. Rockman on Thu, 5th Jan 2017 4:01 pm 

    Nony – “Just because effect A is bigger than effect B, doesn’t mean effect B has no impact.” True but when you add up all the potential B effects under a President Trump I don’t expect them to be worth a sh*t compared to the oil patch world under President Obama. LOL.

    I don’t know if you noticed all the times I listed long lists of the very positive aspects in the US fossil fuel industry that occurred during President Obama’s watch. Each time I was really just trying to bait people into arguing against me that it was just coincidental timing. But there were a number of his policies that were intentionally positive for the oil patch. Yet I was surprised at the small number of rebuttal attempts.

    And again a reminder about the time lag in the entire energy dynamic. A President Trump might generate a dozen pro oil patch policies in his first 6 months but we might not register significant gains until after his 4 year term ends.

  18. Nony on Fri, 6th Jan 2017 8:21 am 

    The “positives” under Obama did not occur BECAUSE of him, but happened for reasons having nothing to do with him.

    “not worth a spit” is not quantitative. Not even semi-quantitative.

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