Publications: Notes at the Margin

The Texas "Taxman" vs. OPEC: No Contest; Carbon Capture as Vaporware (December 11, 2023)

WTI prices have declined by twenty-four percent between the September peak and December 7. The decline matches the twenty-eight percent drop over the same period in 2018. Market observers blame the current decline on oil-exporting countries ignoring agreed-on production reductions. These analysts and writers miss a crucial factor: taxes. Texas, for example, “has a bunch of ad valorem taxes on the oil and gas industry, and very high ones on barrels in storage.” Not surprisingly, Texas refiners cut their crude inventories in December to minimize tax liabilities. Year-end taxes elsewhere likely have the same effect. Thus, efforts by OPEC and OPEC+ members to raise prices at year-end are almost guaranteed to fail. In nearly all crude oil buyer decisions at that time, the tax collectors have the most influence.

 

It is becoming clear that legacy energy firms, which include almost all oil companies, are following the well-trodden path broken by IBM, Microsoft, and other dominant computer firms in the introduction of carbon capture technologies. Their endeavors in this area seem designed to delay the abandonment of fossil fuels and perpetuate their dominance.

 

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