Analysts Talk Biden Gasoline Tax Holiday

Analysts Talk Biden Gasoline Tax Holiday
Analysts at Standard Chartered, RANE and Rystad Energy have their say.

U.S. President Joe Biden’s proposed gasoline tax holiday is too small to make much of a difference.

That’s what Paul Horsnell, the head of commodities at Standard Chartered bank thinks. Horsnell also believes it would be better to find a way to make transfers to lower-income households if the main object is to protect that group.

“Arguably not the way to approach the issue in any case, it is not a good idea to mute price signals that can dampen demand,” Horsnell told Rigzone.

“Today [Thursday] Germany moved to the second stage of its natural gas emergency plan, and that, in part, involves speeding the transmission of price increases to final consumers so as to help depress demand,” he added.

“Gasoline tax relief seeks to do the exact opposite of that. In short, not a good idea in principle and even if it was a good idea the change is too small to make a huge difference,” he continued.

Horsnell outlined that the measure won’t even roll back all the increase in prices in just the first week of June.

“That assumes that all the tax cut would be passed onto the consumer, there has been a suggestion in the UK for example that stations may not have necessarily passed on all the cut in tax,” Horsnell said.

When asked for comment on Biden’s proposed gasoline tax holiday, Matthew Bey, a senior global analyst for RANE, said, “U.S. refiners and oil companies have little financial incentive to change their investment plans and operations due to pressure from the White House”.

“President Biden has few ways to actually pressure the companies and U.S. Gulf Coast refiners are already refining at near maximum levels,” he added in a statement sent to Rigzone.

Bey noted that there is extremely high price volatility in the oil and gas market, highlighting that, in two and a half years, oil prices have fallen from $80 to negative $37 per barrel and risen again to $140 per barrel.

“With that level of price volatility, it is hard for oil companies to justify chasing high oil prices today with more investment in production due to high uncertainty. On the refining side of the equation it is equally hard to justify multibillion dollar investments in the U.S. or European refining sectors because those investments would only become profitable over the long run,” Bey said.

In a separate statement sent to Rigzone, Rystad Energy Analyst Claudio Galimberti said the Biden administration’s proposed gasoline tax holiday would take little pressure off consumers and added that its longer-term impacts are “questionable and could paradoxically be detrimental”.

“Lower prices would marginally boost demand ahead of the busy summer driving season, potentially pushing the market even more out of balance than it currently is as supply constraints remain a struggle,” Galimberti said in a market note sent to Rigzone.

“The best mechanism to rebalance supply and demand is to let the market work itself out,” Galimberti added in the market note.

“If the administration is concerned about the impact of gasoline prices on consumers, a more effective strategy would be to provide cash directly to consumers with the freedom to decide how to spend it, rather than reducing gasoline taxes,” Galimberti continued.

Biden announced Wednesday in a speech at the White House that he’s calling on Congress to suspend the federal gas tax for the next 90 days. In that speech, Biden outlined that he fully understood that a gas tax holiday alone was not going to fix the problem of high gas prices but added that “it will provide families some immediate relief, just a little bit of breathing room, as we continue working to bring down prices for the long haul”.

To contact the author, email andreas.exarheas@rigzone.com


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