ParrotStock's avatar
$256m follower assets
Pausing Fed Gasoline Tax
Biden is considering temporarily pausing the Federal 18.4c gasoline tax.

I'm all for any & all tax elimination, but unfortunately this will do very little to resolve current issues.

Removing the tax only increases demand, and does nothing for the supply shortage that is causing the price increases. Increasing demand will simply put a larger strain on supplies and ultimately prices will rise again to find equilibrium in the market.

There is very little that can be done in the short term to relieve supply side constraints. One of the only options would be to limit or ban finished product exports, however this is very unlikely due to geopolitical issues (would put our European allies in a very bad position).

The only viable option to lower prices domestically is to reduce demand. This move does the opposite, while also increasing US debt. Most measures to reduce demand quickly would be considered "un-American" and aren't likely. The most likely scenario, if one occurs, would be a new COVID variant (real or not) that significantly reduced travel.

I think high transportation fuel prices are here to stay for the immediate future. Remember crude has a marginal affect on current fuel prices, this is a refining issue not a drilling issue. Eliminating the taxes on gasoline will increase demand and strain on current refining.

If this tax "pause" goes into effect, it should be very bullish for refineries. Within a couple of weeks prices will be right back to where they would have been with or without the tax, with the extra margins going towards refiners bottom line.

Any oil/gas or supply/demand guy's here with a counter opinion? 👇

Would love to discuss further.

Neil's avatar
I completely agree. It's like trying to fix a crack in a water dam with a band aid.
Jensen Butler's avatar
@couch_investor "band-aid on a bullet hole" is a frequent expression of mine
OilMan69's avatar
I’m in agreement with you on all this. This is a Goldman chart that was posted on zerohedge a couple weeks back. The only ways to fix this price crisis is higher refining capacity/output or lower demand for refined products. Global refining capacity isn’t expected to return to pre-covid levels for several years, and I doubt refining capacity materially increases in the U.S. any time soon given political and investor pressures, so the first “resolution” is off the table. Suspending the fed gasoline tax only boosts demand (or does little to change demand at all, but certainly doesn’t decrease it). The only way I see refined product pricing coming down is material demand destruction from a recession. Even then, I still think prices remain high for a long time.
ParrotStock's avatar
@oilman69 Thanks for the reply, I was hoping you would comment, I know you're familiar with the space as well. The "under construction" capacity is all foreign, as you mentioned there is likely little to no new capacity coming to the US anytime soon.
I'm glad you mentioned recession, it's something I missed in the original post. It could definitely have an effect, but I see a whole lot of pent up travel demand still. As you said, demand may soften, but I think high prices on refined products are here to stay for some time.
OilMan69's avatar
@parrot right, and even with lower refined product pricing from a recession, crude pricing would come off as well, so the crack spread would remain very high. I don’t see this issue being resolved any time soon (as in several years… if ever? Anti-oil and gas politics are overwhelming clear physical needs/reality) … seems like we are in the early innings of a super cycle for refiners
ParrotStock's avatar
@oilman69 It sure does seems like the stars are aligning for a refining super cycle. Even a policy change will take several years to have any real effect. A welcome relief from the past couple of years (as I work for a refiner).
Fat Baby Funds's avatar
Seems like a PR stunt more than anything else
Dissecting the Markets's avatar
My question is, with the removal of the gas tax, where will they make up the revenues?
ParrotStock's avatar
@dissectmarkets more national debt