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Strategies & Market Trends : impose an oil import tax/ tariff on all brent oil imported t -- Ignore unavailable to you. Want to Upgrade?

To: robert b furman who wrote (4)	1/25/2017 8:48:21 AM
From: robert b furman	Respond to of 5

Looks like a Border Adjusted Tax is just the answer to establish a premium on WTI: A switch to Border-Adjusted Tax (BTA) would immediately lead to a 25% appreciation of US crude and product prices vs. global prices (at a 20% corporate tax rate). This appreciation would provide excess returns to domestic producers and incentivize them to sharply increase activity. This improvement in shale’s competitiveness would be exacerbated by the introduction of a lower US corporate tax rate funded by the BTA. While the BTA’s inflationary impact on US service costs and the deflationary impact of USD appreciation on foreign costs should theoretically offset these shifts and push global prices down by 20%, the contracted nature of oil services implies that the BTA will initially leave US producers moving down on the global cost curve and capturing higher returns. This significant incentive to ramp up US production in a market that is only starting to rebalance would create a renewed large oil surplus in 2018, likely exacerbated by a reversal of the OPEC cuts. This prospect should lead to an immediate sharp decline in global oil prices to try to offset such a potential US ramp-up, either by creating an offsetting foreign production decline or by normalizing US excess returns. Over the longer term, the decline in the US corporate tax rate and shale’s significant growth potential at higher returns could force a deflationary tax policy response abroad, sustainably reducing oil’s marginal cost of production. Importantly, there would initially be no changes in US crude differentials and crude or product trade flows, with all US refiners benefiting from higher margins because of the lower tax rate. Differentiation between US refiners would only materialize if the supply response of US producers creates logistical constraints and wider domestic crude differentials. I say get er done!!! Bob