Brent oil prices decreased by 2.76% or US$1.94, as prices fell this week. Oil traded on April 5, 2018 at a price of $68.33 per barrel relative to US$70.27 last week. Brent oil began the year at US$68.07 per barrel.
87 Octane prices decrease week over week, by 0.22% (JMD$0.27). Additionally 90 Octane fell by 0.22% or (JMD$0.27) week over week. 87 Octane and 90 Octane opened the year at J$121.04 and J$123.88 respectively and now trades at J$123.79 and J$126.63 per litre respectively.
Figure 1: Petrojam, U.S. Gulf Coast Conventional Gasoline Regular and Brent Crude Oil 1 Year Price History
This Week in Petroleum
Changes to income tax law have significant effects on U.S. oil producers
Companies that are publicly traded as U.S. oil exploration and production (E&P) assess their yearly projected cash flows from their proved reserves based on technology, higher prices and geology. Along with these conditions, with the latest release of proved reserves assessments for 2017, the companies factored in effects related to changes of income tax law for corporations enacted at the end of last year. The implications for the 2017 proved reserves reports include fewer tax liabilities for the companies than under the old tax law, ultimately contributing to the total increase in the future cash flow they expect from proved reserves.
The Tax Cuts and Jobs Act of 2017 (TCJA) outlined few adjustments to corporate income taxes that will directly affect U.S. E&P companies. Some of the changes likely to have the largest effects are as follows:
- The federal corporate income tax rate was permanently reduced from 35% to 21%, effective January 1, 2018.
- Tax benefits from net operating losses generated starting January 1, 2018, can be applied to a maximum of only 80% of taxable income in any given year, without expiration. Previously, a company could use net operating losses to claim tax benefits on all of its taxable income, but only for up to 20 years in the future. A net operating loss is generated when operating expenses exceed revenues.
- The corporate alternative minimum tax was repealed.
- The TCJA limits interest expense deductibility to 30% of adjusted taxable income. Previously, companies could generally deduct all interest payments on debt.
- Capital investments may be completely expensed through 2023. After 2023, bonus depreciation can be expensed at lower rates until it is phased out to 0% in 2027. Previously, the accelerated depreciation of capital assets was set to expire by 2020.
“Fourth-quarter 2017 financial results reported by 46 U.S. E&P companies that EIA follows reveal an immediate effect from the tax reform. Collectively, these companies lost $991 million before taxes in the quarter, which would generate an income tax benefit at the prevailing rate. The collective tax benefit claimed in the fourth quarter of 2017, based in part on changes to future tax liabilities, was more than $7 billion, contributing to an annual effective tax rate for 2017 of -147%. Tax payments or benefits on the income statement do not necessarily reflect cash outflows or inflows, but rather a change in a given company’s assets and liabilities.”
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