If the proposed broad 20% border-adjustment tax were implemented and applied to the energy sector, the result would likely lead to a large increase in gasoline prices and a big premium in domestic oil prices vs. international, according to new analysis by Bloomberg Intelligence. Pump prices could rise an average $0.30 per gallon, with more sticker shock on the East Coast, which needs to import octane components as well as crude.
The WTI-Brent spread, which has been negative since the shale boom, would quickly shift to a premium of more than $10 a barrel.
PBF Energy and Phillips 66, the US refiners importing the most foreign crude, would have significant exposure to the border tax, Bloomberg Intelligence said. PBF, due to its East and West Coast refineries, is the least able to switch to more domestic crude oil compared with peers. The company also currently exports less fuel than peers, which further adds to its margin risks.
Refineries on the Gulf Coast may be more able to switch their crude slate to process more domestic crude, though margins would suffer.The top-five US refiners dominate imports, bringing in almost 2 million barrels a day. The growth in Canadian oil production this year is likely to lead to another increase in imports from the country in 2017, the analysts said. The US imports about 3.8 million barrels a day of oil from Canada—more than from any other country. Mexico is the fourth-largest supplier of US oil imports.