President Barack Obama’s surprise proposal on Thursday to charge a $10 a barrel fee on crude oil, equivalent to one-third the going price, drew a predictably swift response from traders and industry figures: Are you joking?
No, say administration aides, though they concede that the proposal to levy a fee that would be used to fund investments in clean transportation projects was meant more to start a broader conversation about shifting toward a lower-carbon economy than to be an initiative they expect to pass through a Republican Congress.
Oil traders barely batted an eye, with US crude prices unchanged at around $31.70 a barrel following the news. Shares in large domestic oil producers like Continental Resources Inc were little changed on Thursday.
“Are you kidding me?” said James Williams, energy economist at WTRG Economics in London, Arkansas. He, like most others, said the fee had no chance of passing into legislation.
Nonetheless, it added insult to injury for an industry reeling from an oil price crash brought on by one of the worst supply gluts in history. Another $10 a barrel in domestic drillers’ costs could render thousands of wells uneconomic.
The new tax would add an estimated 25 cents a gallon to gas prices, according to traders and analysts.
“Even with gas prices at historic lows, gas prices are the barometer to gauge successful energy policies in Washington. Thus any hike, no matter how small, only makes this more challenging,” Thomas Cape, senior analyst at Evercore ISI, said in note to clients.
US natural gas futures fell to their lowest level so far this year on Thursday.
Billionaire investor T. Boone Pickens, who cemented his fortune with bets on oil companies, tweeted: “Don’t know where to start. Dumbest idea ever?” Republicans have previously thwarted administration proposals to end certain tax breaks for oil producers.
The oil markets have developed a higher threshold for bearish news as prices have plunged 75 per cent since mid-2014. The price slide has hit producers across the world and forced US companies to slash spending.
Royal Dutch Shell, Europe’s largest oil company, reported its lowest annual income in over a decade.
On Wednesday, ExxonMobil Corp, the world’s largest oil company, announced its smallest quarterly profit in over a decade while BP said its 2015 loss was its biggest ever.
“YIKES!” Carl Larry, chief executive of consultancy Oil Outlooks in Houston, said in an emailed statement.
“That’s a lot of money to ask from an industry that can’t afford to pay its own expenses, much less a $10 tax.”