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"US tax reforms could 'transform' global oil market: Goldman Sachs"

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  • "US tax reforms could 'transform' global oil market: Goldman Sachs"

    US tax reforms could 'transform' global oil market: Goldman Sachs

    Wednesday, 25 Jan 2017

    The push by Republicans in the U.S. House of Representatives for a shift to border-adjusted corporate tax (BTA) could push U.S. crude prices higher than the global benchmark Brent, triggering large-scale domestic production, according to analysts at Goldman Sachs on Tuesday.

    The measure, known as border adjustment, intends to boost U.S. manufacturing by taxing imports while exempting U.S. business export revenues from corporate taxation.

    [...]

    "If implemented, the impacts on the oil market would be significant," Goldman said.

    "We expect WTI could move to a $10 per barrel premium to Brent from a $3 discount - a $13 (+25 percent) relative move immediately."


    [...]

    The appreciation in prices could be an incentive for producers to sharply increase activity, the bank said warning, that the ramp up in U.S. production in a market only starting to rebalance would create a renewed large oil surplus in 2018, which could lead to an immediate sharp decline in global oil prices.

    The bank says it sees Brent prices coming down to $50 per barrel in 2019, assuming a 15 percent appreciation in the U.S. dollar upon implementation of the BTA and a 30 percent pass-through of U.S. production costs to global production costs.

    If this pass through of costs continues in the long run, it would result in 2020 Brent prices falling to $40 per barrel, Goldman analysts added.

    [...]

    http://www.cnbc.com/2017/01/25/us-ta...man-sachs.html

    Brent, the OPEC basket and all other imported crude oil prices fall. West Texas Intermediate, Light Louisiana Sweet and all other domestic crude oil prices rise... Apply the BTA across the entire economy... US companies bring money and jobs back to the USA...
    Watts Up With That? | The world's most viewed site on global warming and climate change.

  • #2
    Raising prices for all of us across the board. Thanks. We need more of the tax burden on the average Joe.
    “The time has come,” the Walrus said,
    “To talk of many things:
    Of shoes—and ships—and sealing-wax—
    Of cabbages—and kings—
    And why the sea is boiling hot—
    And whether pigs have wings.”
    ― Lewis Carroll

    Comment


    • #3
      Originally posted by Combat Engineer View Post
      Raising prices for all of us across the board. Thanks. We need more of the tax burden on the average Joe.
      It wouldn't raise prices "across the board." It would probably lower prices "across the board"...
      The appreciation in prices could be an incentive for producers to sharply increase activity, the bank said warning, that the ramp up in U.S. production in a market only starting to rebalance would create a renewed large oil surplus in 2018, which could lead to an immediate sharp decline in global oil prices.

      The bank says it sees Brent prices coming down to $50 per barrel in 2019, assuming a 15 percent appreciation in the U.S. dollar upon implementation of the BTA and a 30 percent pass-through of U.S. production costs to global production costs.

      If this pass through of costs continues in the long run, it would result in 2020 Brent prices falling to $40 per barrel, Goldman analysts added.

      BTA would also leave U.S. refiners just as happy as its producers, as the immediate spike in U.S. crude and petroleum products prices would leave them with excess returns, analysts said.

      Brent and other imported oil would likely drop to $40/bbl, while WTI and other domestic oil would hold at about $50/bbl.
      Watts Up With That? | The world's most viewed site on global warming and climate change.

      Comment


      • #4
        Originally posted by The Doctor View Post
        It wouldn't raise prices "across the board." It would probably lower prices "across the board"...
        The appreciation in prices could be an incentive for producers to sharply increase activity, the bank said warning, that the ramp up in U.S. production in a market only starting to rebalance would create a renewed large oil surplus in 2018, which could lead to an immediate sharp decline in global oil prices.

        The bank says it sees Brent prices coming down to $50 per barrel in 2019, assuming a 15 percent appreciation in the U.S. dollar upon implementation of the BTA and a 30 percent pass-through of U.S. production costs to global production costs.

        If this pass through of costs continues in the long run, it would result in 2020 Brent prices falling to $40 per barrel, Goldman analysts added.

        BTA would also leave U.S. refiners just as happy as its producers, as the immediate spike in U.S. crude and petroleum products prices would leave them with excess returns, analysts said.

        Brent and other imported oil would likely drop to $40/bbl, while WTI and other domestic oil would hold at about $50/bbl.
        I was not talking about Oil Prices, but prices in general. The BTA is nothing more than a Vat Tax. It applies to ALL products that are not exports. So We'll all be paying 20% more for everything we buy for the most part.
        “The time has come,” the Walrus said,
        “To talk of many things:
        Of shoes—and ships—and sealing-wax—
        Of cabbages—and kings—
        And why the sea is boiling hot—
        And whether pigs have wings.”
        ― Lewis Carroll

        Comment


        • #5
          Originally posted by Combat Engineer View Post
          I was not talking about Oil Prices, but prices in general. The BTA is nothing more than a Vat Tax. It applies to ALL products that are not exports. So We'll all be paying 20% more for everything we buy for the most part.
          You'll mostly be paying the same or less because the BTA is part of a tax cut and it's not a VAT...
          What’s the difference between the proposed tax and a VAT?

          The cash-flow tax proposed in the House is discriminatory. The tax on domestically produced goods would be less than the tax on imports, and it would vary across sectors. Unlike the sales tax, the cash-flow tax with border adjustment would favor domestically produced goods.

          [...]

          What’s the upside of border adjustment?

          The plan is not without merit. The attraction of border tax adjustment is that it would eliminate much of the gaming of the tax system by U.S. corporations.

          For example, the existing tax code offers incentives for Apple Inc. to shift profits to Ireland and overcharge for purchases from subsidiaries abroad. Border adjustment would remove those incentives.

          Because imports are no longer deductible, their cost is irrelevant to the tax base. Similarly, in terms of exports, there would be no incentive to undercharge for them or to move production to a low-tax nation to reduce U.S. profits, since exports are excluded from taxable income.

          An even bigger attraction to Congress is that the plan would raise billions of dollars, allowing for bigger corporate tax cuts. The U.S. annual trade deficit is running at $500 billion. All else equal, a 20 percent border adjustment would yield $100 billion of revenue a year or $1 trillion in 10 years.

          The major problems are that the Paul Ryan version is very complicated and it could face WTO challenges (because it isn't a VAT).

          The corporate tax rate would be reduced from 35% to 15-20%, export income would have a 0% tax rate while imports would be taxed at 20%, the standard tax rate.
          Watts Up With That? | The world's most viewed site on global warming and climate change.

          Comment


          • #6
            http://www.businessinsider.com/probl...ax-idea-2017-1

            Michael Gapen, chief economist at Barclays, said the border tax would decrease GDP and compared it to Japan's experience with a value-added tax. From Gapen's note to clients:

            "We estimate that a 20% border tax could increase year-over-year rates of core inflation by 0.5-1.0 percentage points and reduce real GDP growth by 1.0-1.5 percentage points. Japan, which raised its VAT by 3pp in 2014, provides a useful case study for comparison. The response of inflation in Japan was consistent with what we would expect for the US. However, the decline in GDP growth was much larger at 4pp (to -1.1% y/y from 3.1% prior to the increase in the VAT), implying significant downside risk to our estimates."

            Additionally, Ethan Harris, chief US economist at Bank of America Merril Lynch, noted a BAT may not even decrease the size of the trade imbalance.
            I hope they go for it, nothing will speed the GOP exit from Majority status than an increase in prices for the very people they put in and a nice recession.
            “The time has come,” the Walrus said,
            “To talk of many things:
            Of shoes—and ships—and sealing-wax—
            Of cabbages—and kings—
            And why the sea is boiling hot—
            And whether pigs have wings.”
            ― Lewis Carroll

            Comment


            • #7
              Very good news!
              Any man can hold his place when the bands play and women throw flowers; it is when the enemy presses close and metal shears through the ranks that one can acertain which are soldiers, and which are not.

              Comment


              • #8
                Not good news, because the oil industry will do anything to maintain high profit margins. I predict there will be numerous refinery problems that cut back deliveries and force the price of fuel up.

                The only people in America who never, ever get a break are the taxpaying customers.
                Quis Custodiet Ipsos Custodes? Who is watching the watchers?

                Comment

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