Trump Tax Reforms Could Cause Oil Production Surge: Goldman Sachs

by Ship & Bunker News Team

Goldman Sachs believes Trump's proposed tax reforms may result in a 25 percent upward surge of West Texas Intermediate futures

His first week in office is proving U.S. president Donald Trump to be, if nothing else, true to his word in acting upon campaign promises, and Goldman Sachs believes the brash billionaire's proposed tax reforms may result in a 25 percent upward surge of West Texas Intermediate futures.

This in turn could trigger large-scale domestic oil production, according to Goldman analysts, referring to the outcome of the push by House of Representative Republicans for a shift to border-adjusted corporate tax (BTA), whereby imports into the States would be taxed but U.S. business export revenues would be exempt from corporate taxation.

While conceding that such a policy would be challenged by World Trade Organization non-compliance and transition issues, Goldman stated, "We expect WTI could move to a $10 per barrel premium to Brent from a $3 discount - a $13 (plus 25 percent) relative move immediately."

“ We've got supply and demand to watch out for, but we can get there, and certainly the ban lifted on exports is a huge thing Harold Hamm, founder and CEO, Continental Resources

But the bank warned that if a ramp up in U.S. oil production were to result, it would be in a market only starting to rebalance; this would create a renewed large oil surplus in 2018, which could lead to an immediate sharp decline in global oil prices.

The analysts think that in the short term Brent prices will drop to $50 per barrel in 2019 based on a BTA-driven 15 percent appreciation in the U.S. dollar, followed by another $10 drop in 2020.

The scenario outlined by Goldman is music to the ears of Harold Hamm, founder and CEO of Continental Resources; pointing out that critics were proven wrong when predicting the U.S. would never be a significant exporter of natural gas, he told CNBC that "we've got more potential than anyone else with crude oil," and reiterated his prediction of America reaching energy independence by 2022.

Hamm added, "we've got supply and demand to watch out for, but we can get there, and certainly the ban lifted on exports is a huge thing."

Trump's remarkably aggressive stance during his first week in office (which also saw him get the two stalled Keystone XL and Dakota Access oil project unblocked via executive action) has caused considerable concern on the international front, and Segolene Royal, environment and energy minister for France, called the pipeline initiatives "very bad decisions for the future of the planet."

In response to reports that Trump will remove the U.S. from the Paris climate accord that's been ratified by 126 countries as well as slash funding for United Nations climate programs, Royal said that the "fight" against fossil fuels and air pollution "is irreversible".

Royal's term ends when her country elects a new government in May, and it's widely expected that the French citizenry, fed up with everything from a tepid economy to immigration issues, will vote in a conservative-styled government not unlike that of Trump's.

While Hamm has been widely ridiculed for supporting Trump, he has proven to be remarkably prescient in accurately foreseeing world events: last October, in addition to coaxing Russia and the Organization of the Petroleum Exporting Countries to curb oil production, he rejected outright what was then overwhelming evidence that Trump would lose the presidential election: "The polls have not told the entire story here: there's a lot to be said for what's going on with this Trump movement across the country today."