Meanwhile, OPEC predicts demand will plunge later this year: File Image/Pixabay
Ed Moya, senior market analyst, Oanda
Energy traders are bracing for some type of action
Oil prices on Tuesday took an unexpected dive, reportedly due to the White House considering further energy legislation aimed to help curb inflation but that critics say amounts to little more than more taxes for energy producers.
West Texas Intermediate fell $2.00 to settle at $118.93 per barrel after it was learned that Democratic senator Ron Wyden is planning to propose a surtax that would force companies to pay as much as 42 percent federal taxes depending on their profit margin.
Bharat Ramamurti, deputy director of the National Economic Council, told Bloomberg that U.S. president Joe Biden has not ruled out an excess profit tax for oil companies.
He added that Biden has made clear "there's a real issue here with the level of production by the oil companies and the profits that they are making right now after the Russian invasion of Ukraine."
But as with recent initiatives under the Biden administration, analysts were skeptical of the surtax's efficacy, and Ed Moya, senior market analyst at Oanda, remarked that, "Energy traders are bracing for some type of action to come from the Biden administration to help Americans at the pump, even if it will have little long-term effect."
Oil trading on Tuesday was also influenced by fear that the U.S. Federal Reserve will surprise markets with a higher-than-expected interest rate hike; Krishna Guha, vice chair at ISI Evercore, which had anticipated a half-point hike, said, "Until and unless we see some kind of unofficial clarification, we are forced to take the reports at what we think is face value…..it looks like we were wrong and 75 [basis points] is after all likely this week."
A decision by the Fed is not expected until the end of Wednesday.
Meanwhile, as the majority of the analytical community predicted no quick end to high prices or demand, the Organization of the Petroleum Exporting Countries (OPEC) distinguished itself as the lone voice forecasting a huge drop in demand growth.
According to an OPEC delegate, preliminary projections from the cartel show that world oil consumption will expand by 1.8 million barrels per day (bpd), down from the 3.4 million bpd anticipated this year; this outlook will be reviewed by the group's member states next week.