The much-feared border-adjusted corporate tax (BTA), championed by the Republicans in U.S. House of Representatives, could thrust the benchmark West Texas Intermediate (WTI) price higher than North Sea Brent, predicts the ubiquitous analysts at Goldman Sachs. The BTA has been designed to improve the competitiveness and profitability of American manufacturers by taxing imports, while exempting local business revenues from corporate taxation.
Goldman forecasts a 25 per cent jump in WTI futures and refined products if the BTA is passed into law. “If implemented,” a Goldman Sachs spokesperson says, “the impacts on the oil market could be significant. We expect WTI could move to a $10/barrel (U.S.) premium to Brent from a $3/barrel discount – a $13 or 25 per cent change immediately.”
The company also predicts the higher crude price will probably act as an incentive for producers to start drilling again. “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.”
Goldman Sachs reports that if the Trump administration passes the BTA, the company believes that Brent prices will retreat to the $50/barrel range in 2019, based on the hypothesis of a “15 per cent appreciation in the U.S. dollar and a 30 per cent pass-through of U.S. production costs to global production costs.”
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