REPORT: Tax reform will stimulate US oil market

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Tax reform is expected to stimulate both oil demand and U.S. drilling, according to Morgan Stanley senior oil analyst Abhishek Deshpande.

Deshpande raised Morgan Stanley’s 2018 forecast of oil prices to $60 per barrel on global benchmark Brent and $54.90 on WTI, anticipating crude will ride the tide of economic growth to increased growth and production, according to a report from CNBC.

“Going into 2018 we are expecting this whole synchronized global, economic growth which, of course, has a direct impact on oil products demand,” Deshpande said on CNBC’s “Power Lunch.” “And if tax reform was to impact the growth in oil products demand on the upside, for sure that will help balance the market even more than what they’re anticipating in ’18.”

According to a report in Business Insider, a last-minute provision tucked into the tax reform bill by Senator John Cornyn (R-TX) allows oil and gas companies to be taxed at a lower rate.

As a result, energy companies classified as “master limited partnerships” could be taxed under the reduced “pass-through” rate. Other tax breaks enjoyed by the oil and gas sector are left untouched, save for one credit for producers of “marginal wells” and for “enhanced oil recovery.”

In regards to the tax bill, Deshpande said that he thinks the provision for 100 percent capital expenditure expensing will probably mean more drilling by U.S. companies — as long as the price is right.

He added, “It’s going to help U.S. producers to increase their drilling activity in 2018 and going forward.”

According to Deshpande’s pricing predictions, cost shouldn’t be a problem. He said he could see oil companies kicking back up production on pricing of $50 to $55 per barrel.

 

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