The administration of US President Donald Trump’s plan to slash corporate tax rates could free up more than US$10 billion per year for US oil explorers, opening new opportunities to boost drilling.
Crude prices in New York have fallen 10 percent this year as added drilling in US shale fields offset an OPEC-led drive to raise prices by cutting production.
The US push has spurred concern that another price rout could be just around the corner, following a two-year decline that saw prices fall as low as US$26.05 per barrel in February last year.
Republicans have said they want to cut the top corporate rate to 15 or 20 percent, from 35 percent now. That could mean more than US$10 billion in savings for oil producers that are one of the country’s most-heavily taxed industries, according to Bloomberg Intelligence research.
The final number will hinge on whether drillers surrender other tax breaks in exchange, said Vincent Piazza, a senior analyst at Bloomberg Intelligence.
“In theory,” explorers would divert tax savings to more domestic drilling, but nothing is ever one-for-one,” Piazza said in a telephone interview.
West Texas Intermediate crude fell 0.2 percent on Monday to US$48.47 after it hit a high of US$55.24 on Jan. 3.
The number of rigs drilling US fields for crude almost doubled to 617 since the end of May last year, when the full impact of the oil-market collapse shrank the fleet to a 6.5-year low, according to Baker Hughes Inc.
The oil rig count has advanced in 18 of the past 19 weeks as explorers coped with reduced cash flows by finding cheaper ways to pump each barrel from the ground.
US drillers lifted crude production more than 3 percent since the end of last year to 9.088 million barrels per day as of March 3, according to the Energy Department in Washington.
It is not clear when a tax cut plan might be finalized by the US Congress and signed into law by the president.
“A reform bill faces stiff challenges and would likely come with tradeoffs such as fewer tax breaks,” the Bloomberg Intelligence report said.
Still, the discussion comes as the future of the global industry is under debate.
At CERAWeek by IHS Markit, the largest annual gathering of industry leaders, some top executives warned against overindulgence by US drillers.
Harold Hamm, a billionaire shale oilman, said the US industry could “kill” the oil market if it embarks into another spending binge.
US production “could go pretty high, but it’s going to have to be done in a measured way, or else we kill the market,” Hamm, the chairman and CEO of Continental Resources Inc, said at the meeting.
Saudi Arabian Minister of Energy, Industry and Mineral Resources Khalid al-Falih told the conference that global oil stockpiles have not drained as quickly as expected, opening the door for an extension to OPEC production cuts that were originally due to expire at mid year.
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