Biden May Raise The Idea Of A Windfall Tax On Energy Producers

Key Insights

• The U.S. administration continues to battle against high gas prices.
• The U.S. President Joe Biden is reportedly ready to raise the idea of a windfall tax on the profits of energy producers. 
• The reports had little impact on commodity prices, while energy stocks have found themselves under some pressure. 

U.S. Administration Remains Focused On High Gas Prices

According to recent reports, U.S. President Joe Biden may soon discuss the possibility of imposing a windfall tax on the profits of energy companies. If the reports are correct, the idea will be floated just days ahead of U.S. midterm elections.

The U.S. administration wants to put pressure on the prices at the pump that fuel inflation, which has settled above the 8.00% level.

Any additional taxes will have to be approved by the Congress, so the future of the idea may depend on the results of the upcoming elections.

Energy Stocks Pull Back From Highs

Typically, higher taxes discourage higher production levels as energy companies’ investments decline.

However, the news did not provide any material support to WTI oil, which continued its attempts to settle below the support level at $86.20. Natural gas gained 9% today, but this move was triggered by higher LNG demand.

Not surprisingly, the news had a bigger impact on energy stocks. Exxon Mobil, Chevron, ConocoPhillips, and other stocks in this market segment moved away from daily highs. Traders worry that higher taxes will cut the profits of energy companies. In addition, the continued focus on energy companies’ dividends may lead to unfavorable legislative moves in the future.

While the market’s worries are understandable, it remains to be seen whether the current administration will have enough time to push the idea through the Congress, especially if Democrats lose their control of the House or the Senate. However, energy stocks may remain under some pressure if the windfall tax idea gains some traction.

Meanwhile, the impact on oil and natural gas prices will likely stay minimal in the near term. Energy projects take months and years to develop so the potential tax will have minimal impact on energy production in the near term, although energy companies may cut their investment plans in response to the tax.

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