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Flat tax
A flat tax (short for flat rate tax) is a tax system with a constant tax rate. [James, Simon (1998) "A Dictionary of Taxation", Edgar Elgar Publishing Limited: Northampton, MA] Usually the term "flat tax" would refer to household income (and sometimes corporate profits) being taxed at one marginal rate.
Flat taxes, implemented as well as proposed, usually exempt household income below a statutorily determined level that is a function of the type and size of the household. As a result, so-called flat taxes are often not a true proportional tax, as taxable income may not equal total income. Nomenclature regarding flat taxes has become increasingly lax, in that taxes that are described as flat sometimes have little to differentiate them from other tax regimes, e.g. progressive taxes.
Tax effects
Tax distribution is a hotly debated aspect of flat taxes. The relative fairness hinges crucially on what tax deductions are abolished when a flat tax is introduced, and who profits the most from those deductions.
Proponents of the flat tax claim it is fairer than stepped marginal tax rates, since everybody pays the same proportion. Opponents point out first that it might not make sense for everyone to pay the same proportion when some get advantages of prosperity. Also, they note that for the state to raise the same amount of money under a flat rate tax (to the first order, that is, assuming people earn the same incomes as before) requires that the rich pay less and the poor pay more than they would under a more progressive tax system. Proponents respond to this argument by saying that second-order effects would compensate; a flat tax would remove economic disincentives and encourage economic growth, thus leading to higher incomes and more tax revenues. So taxpayers across income ranges could be paying at the same or lower rate than their old system. Economic models usually predict that flat tax will increase both output and inequality. [http://www.iser.essex.ac.uk/pubs/workpaps/pdf/2008-06.pdf ] [http://mpra.ub.uni-muenchen.de/7304/ ] [http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V85-3Y9RKX5-8&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_version=1&_urlVersion=0&_userid=10&md5=2b6593e1669a80a761d9eab81765a673 ]
Proponents claim that since everybody pays the same rate, it treats everyone equally and thus is fair to everyone. Opponents of the flat tax, on the other hand, claim that since the marginal value of income declines with the amount of income (the last 100 of income of a family living near poverty being considerably more valuable than the last 100 of income of a millionaire), taxing that last 100 of income the same amount despite vast differences in the marginal value of money is unfair. Many flat-tax proponents actually concede this premise since most proposals are not truly totally flat but have a threshold below which income is not taxed at all.]
* [The Associated Press. "Bulgarian parliament approves 2008 budget that foresees record 3 percent surplus". [http://www.iht.com/articles/ap/2007/12/20/business/EU-FIN-ECO-Bulgaria-Budget.php] ]
*ALB [Daniel Mitchell. "Albania Joins the Flat Tax Club." Cato at Liberty, April 9, 2007. [http://www.cato-at-liberty.org/2007/04/09/albania-joins-the-flat-tax-club/] ] [Jonilda Koci. "Albanian government approves 10% flat tax". Southeast European Times, June 4, 2007. [http://www.balkantimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features/2007/06/04/feature-03] ]
*flagicon|Czech Republic Czech Republic [Alvin Rabushka. "The Flat Tax Spreads to the Czech Republic." hoover.org, 27 August 2008. [http://www.hoover.org/research/russianecon/essays/9400171.html] ]
* [Alvin Rabushka. "Estonia Plans to Reduce its Flat-Tax Rate." March 26, 2007. [http://www.hoover.org/research/russianecon/essays/6711412.html] ] [Toby Harnden. "Pioneer of the 'flat tax' taught the East to thrive." "Telegraph," April 9, 2005. [http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2005/09/04/nflat104.xml&sSheet=/news/2005/09/04/ixhome.html] ] Michael Keen, Yitae Kim, and Ricardo Varsano. "The 'Flat Tax(es)': Principles andEvidence." IMF Working Paper WP/06/218. [http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf] ]
* [Alvin Rabushka. "The Flat Tax Spreads to Georgia." January 3, 2005. [http://www.russiaeconomy.org/comments/010305.html] ]
*Flag|Kazakhstan [The Economist Intelligence Unit, Kazakhstan fact sheet. "In 2007 Kazakhstan introduced several changes to the taxation system. The flat-rate VAT on all goods was reduced from 15% to 14%, and a flat rate of income tax of 10% was introduced, in place of the previous progressive range of 5-20%." [http://www.economist.com/countries/Kazakhstan/profile.cfm?folder=Profile-FactSheet] ]
* [Daniel Mitchell. "Iceland Comes in From the Cold With Flat Tax Revolution." March 27, 2007. [http://www.cato.org/pub_display.php?pub_id=8155] ] [The Globe and Mail, as quoted on Cato-at-liberty by Daniel Mitchell: "Effective this year, Iceland (population: 300,000) taxes all personal income at a flat rate of 32 per cent — which appears high because it includes municipal as well as national taxes." [http://www.cato-at-liberty.org/2007/05/08/the-global-flat-tax-revolution-continues/] ] Iceland's system differs from the Hall-Rabushka flat tax by taxing investment income and allowing numerous exceptions. [Daniel Mitchell. "Iceland Joins the Flat Tax Club." Cato Tax and Budget Bulletin, February 2007. [http://www.cato.org/pubs/tbb/tbb_0207-43.pdf] ]
* [Daniel Mitchell. "If a Flat Tax is Good for Iraq, How About America?" "Heritage foundation", November 10, 2003. [http://www.heritage.org/Press/Commentary/ed111003c.cfm] .] [Alvin Rabushka. "The Flat Tax in Iraq: Much Ado About Nothing—So Far." May 6, 2004. [http://www.hoover.org/research/russianecon/essays/5145652.html] ] [Noam Chomsky. "Transfer real sovereignty." "znet", May 11, 2004. [http://blog.zmag.org/ee_links/transfer_real_sovereignty] ] It is not clear how effectively the Iraqi tax is being collected in practice.
* [http://ec.europa.eu/economy_finance/publications/publication415_en.pdf]
* Alvin Rabushka. "Flat and Flatter Taxes Continue to Spread Around the Globe." January 16, 2007. [http://www.hoover.org/research/russianecon/essays/5222856.html] ]
* [Alvin Rabushka. "A Competitive Flat Tax Spreads to Lithuania." November 2, 2005. [http://www.russianeconomy.org/comments/110205.html] ]
* ["The lowest flat corporate and personal income tax rates." "Invest Macedonia" government web site. Retrieved June 6, 2007. [http://www.investinmacedonia.org/news.aspx?news=35] ]
* [Alvin Rabushka. "The Flat Tax Spreads to Mongolia." January 30, 2007. [http://www.hoover.org/research/russianecon/essays/5471761.html] ]
* [Alvin Rabushka. "The Flat Tax Spreads to Montenegro." April 13, 2007. [http://www.hoover.org/research/russianecon/essays/7019202.html] ]
* [Alvin Rabushka. "Russia adopts 13% flat tax." July 26, 2000. [http://www.russiaeconomy.org/comments/072600.html] ]
* [Alvin Rabushka. "The Flat Tax Spreads to Serbia." March 23, 2004. [http://www.russiaeconomy.org/comments/032304.html] ]
* [Alvin Rabushka. "The Flat Tax Spreads to Ukraine." May 27, 2003. [http://www.russiaeconomy.org/comments/052703.html] ]
* Transnistria, also known as Transnistrian Moldova or Pridnestrovie. [Transnistrian government web site. [http://pridnestrovie.net/flattax.html] ] This is a disputed territory, but the authority that seems to have "de facto" government power in the area claims to levy a flat tax.
Countries reputed to have a flat tax
* Some sources claim that Hong Kong has a flat tax,Daniel Mitchell. "Fixing a Broken Tax System with a Flat Tax." "Capitalism Magazine," April 23, 2004. [http://www.capmag.com/article.asp?ID=3636] ] though its salary tax structure has several different rates ranging from 2% to 20% after deductions. Taxes are capped at 16% of gross income, so this rate is applied to upper income returns if taxes would exceed 16% of gross otherwise. [Duncan B. Black. "Hyman falsely claimed Hong Kong imposes flat tax on income," "Media Matters", Jan 27, 2005. [http://mediamatters.org/items/200501270004] ] Accordingly, Duncan B. Black of "Media Matters for America," says "Hong Kong's 'flat tax' is better described as an 'alternative maximum tax.'" [Duncan B. Black. "Fund wrong on Hong Kong 'flat tax'." "Media Matters", Feb 28, 2005. [http://mediamatters.org/items/200502280004] ] Alan Reynolds of the Cato Institute similarly notes that Hong Kong's "tax on salaries is not flat but steeply progressive." [Alan Reynolds. "Hong Kong's Excellent Taxes." "townhall.com", but the column was syndicated. June 6, 2005. [http://www.cato.org/pub_display.php?pub_id=3793] ] Hong Kong has, nevertheless, a flat profit tax regime.
Countries considering a flat tax system
These are countries where concrete flat tax proposals are currently being considered by influential politicians or political parties.
* In 2007 elections, the Civic Platform gained 41.5% of the votes, running on a 15% flat tax as one of the main points in the party program. [" [http://www.adamsmith.org/blog/archives/001120.php Poland brings in flat tax] ", Adam Smith Institute]
* There are some articles from 2005 indicating that the Greek government considered a flat tax. If it is still on the table, it apparently hasn't passed yet as of February 2008. [Greece joins the flat rate tax bandwagon. By George Trefgarne, Economics Editor. The Telegraph. 2005. [http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/08/15/cngreec15.xml] ] ["Flat tax rate on the cards." Kathimerini. 11 July 2005. [http://www.ekathimerini.com/4dcgi/_w_articles_politics_100005_11/07/2005_58468] ]
Recent and current proposals
Flat tax proposals have made something of a "comeback" in recent years. In the United States, former House Majority Leader Dick Armey and FreedomWorks have sought grassroots support for the flat tax (Taxpayer Choice Act). In other countries, flat tax systems have also been proposed, largely as a result of flat tax systems being introduced in several countries of the former Eastern Bloc, where it is generally thought to have been successful, although this assessment has been disputed (see below). [http://www.nationalreview.com/nrof_bartlett/bartlett200311100918.asp Flat-Tax Comeback] Bruce Bartlett, "National Review", November 10, 2003] This has elicited much interest from countries such as the US, where it has gone hand in hand with a general swing towards conservatism. [http://www.guardian.co.uk/comment/story/0,3604,1598988,00.html Cameron is no moderate] , Neil Clark, "The Guardian" October 24, 2005]
The countries that have recently reintroduced flat taxes have done so largely in the hope of boosting economic growth. The Baltic countries of Estonia, Latvia and Lithuania have had flat taxes of 24%, 25% and 33% respectively with a tax exempt amount, since the mid-1990s. On 1 January2001, a 13% flat tax on personal income took effect in Russia. Ukraine followed Russia with a 13% flat tax in 2003, which later increased to 15% in 2007. Slovakia introduced a 19% flat tax on most taxes (that is, on corporate and personal income, for VAT etc., almost without exceptions) in 2004; Romania introduced a 16% flat tax on personal income and corporate profit on January 1 2005. Macedonia introduced a 12% flat tax on personal income and corporate profit on January 1 2007 and promised to cut it to 10% in 2008. [http://www.investinmacedonia.org/news.aspx?news=35] Albania will be implementing a 10% flat tax from 2008. [ [http://www.setimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features/2007/04/06/feature-02 Albanian government to implement flat tax (SETimes.com) ] ]
In the United States, while the Federal income tax is progressive, five states — Illinois, Indiana, Massachusetts, Michigan and Pennsylvania — tax household incomes at a single rate, ranging from 3% (Illinois) to 5.3% (Massachusetts). Pennsylvania even has a "pure" flat tax with no zero-bracket amount.
Greece (25%) and Croatia are planning to introduce flat taxes. Fact|date=May 2007 Paul Kirchhof, who was suggested as the next Finance minister of Germany in 2005, proposed introducing a flat tax rate of 25% in Germany as early as 2001, which sparked widespread controversy. Some claim the German tax system is the most complex one in the world.Fact|date=May 2007
On 27 September 2005, the Dutch Council of Economic Advisors recommended a high flat rate of 40% for income tax in the Netherlands.Fact|date=May 2007 Some deductions would be allowed, and persons over 65 years of age would be taxed at a lower rate.
In the United States, proposals for a flat tax at the federal level have emerged repeatedly in recent decades during various political debates. Jerry Brown, former Democratic Governor of California, made the adoption of a flat tax part of his platform when running for President of the United States in 1992. At the time, rival Democratic candidate Tom Harkin ridiculed the proposal as having originated with the "Flat Earth Society". Four years later, Republican candidate Steve Forbes proposed a similar idea as part of his core platform. Although neither captured his party's nomination, their proposals prompted widespread debate about the current U.S. income tax system.
Flat tax plans that are presently being advanced in the United States also seek to redefine "sources of income"; current progressive taxes count interest, dividends and capital gains as income, for example, while Steve Forbes's variant of the flat tax would apply to wages only.Fact|date=May 2007
In 2005 Senator Sam Brownback, a Republican from Kansas, stated he had a plan to implement a flat tax in Washington, D.C..Fact|date=May 2007 This version is one flat rate of 15% on all earned income. Unearned income (in particular capital gains) would be exempt. His plan also calls for an exemption of $30,000 per family and $25,000 for singles. Mississippi Republican Senator Trent Lott stated he supports it and would add a $5,000 credit for first time home buyers and exemptions for out of town businesses. DC Delegate Eleanor Holmes Norton's position seems unclear, however DC mayor Anthony Williams has stated he is "open" to the idea.
Flat taxes have also been considered in the United Kingdom by the Conservative Party. However, it has been roundly rejected by Gordon Brown, then Chancellor of the Exchequer for Britain's ruling Labour Party, who said that it was "An idea that they say is sweeping the world, well sweeping Estonia, well a wing of the neo-conservatives in Estonia", and criticised it thus: "The millionaire to pay exactly the same tax rate as the young nurse, the home help, the worker on the minimum wage". [http://politics.guardian.co.uk/labour2005/story/0,16394,1578857,00.html Gordon Brown's speech to the Labour party conference] September 26, 2005]
Flat tax proposals differ in how they define and measure what is subject to tax.
Flat tax with deductions
US Congressman Dick Armey has advocated a flat tax on all income in excess of an amount shielded by household type and size. For example, draft legislation proposed by Armey would allow married couples filing jointly to deduct $26,200, unmarried heads of household to deduct $17,200, and single adults, $13,100. $5,300 would be deducted for each dependent. A household would pay tax at a flat rate of 17% on the excess. Businesses would pay a flat 17% rate on all profits. Others have put forth similar proposals with various rates and deductions. Armey defined income to include only salary, wages, and pensions; capital gains and all other sources of wealth appreciation were excluded from taxation under his proposal. [ [http://www.ncpa.org/ba/ba136.html The Armey Flat Tax] , National Center for Policy Analysis]
While campaigning for the American presidency in 1996 and 2000, Steve Forbes called for replacing the income tax by a tax at the flat rate of 17% of consumption, defined as income minus savings, in excess of an amount determined by the type and size of the household.Fact|date=May 2007 For example, the exempt amount for a family of four would be $42,000 per year.
Modified flat taxes have been proposed which would allow deductions for a very few items, while still eliminating the vast majority of existing deductions. Charitable deductions and home mortgage interest are the most discussed exceptions, as these are popular with voters and often used.
Hall-Rabushka flat tax
Designed by economists at the Hoover Institution, Hall-Rabushka is a fully developed flat tax on consumption (taxing consumption is thought by economists to be more efficient than taxing income). [ [http://www.hoover.org/publications/books/3602666.html Hoover Institution - Books - The Flat Tax ] ] Loosely speaking, Hall-Rabushka accomplishes this by taxing income and then excluding investment. An individual could file a Hall-Rabushka tax return on a postcard. Robert Hall and Alvin Rabushka have consulted extensively in designing the flat tax systems in Eastern Europe.
Negative income tax
The Negative Income Tax (NIT) which Milton Friedman proposed in his 1962 book "Capitalism and Freedom" is a type of flat tax. The basic idea is the same as a flat tax with personal deductions, except that when deductions exceed income, the taxable income is allowed to become negative rather than being set to zero. The flat tax rate is then applied to the resulting "negative income," resulting in a "negative income tax" the government owes the household, unlike the usual "positive" income tax, which the household owes the government.
For example, let the flat rate be 20%, and let the deductions be $20,000 per adult and $7,000 per dependent. Under such a system, a family of four making $54,000 a year would owe no tax. A family of four making $74,000 a year would owe tax amounting to 0.2(74,000-54,000) = $4,000, as under a flat tax with deductions. But families of four earning less than $54,000 per year would owe a "negative" amount of tax (that is, it would receive money from the government). E.g., if it earned $34,000 a year, it would receive a check for $4,000.
The NIT is intended to replace not just the USA's income tax, but also many benefits low income American households receive, such as food stamps and Medicaid. The NIT is designed to avoid the welfare trap—effective high marginal tax rates arising from the rules reducing benefits as market income rises. An objection to the NIT is that it is welfare without a work requirement. Those who would owe negative tax would be receiving a form of welfare without having to make a try to obtain employment. This is essentially a moral objection based on the Puritan work ethic; the advocates of negative tax agree that this would happen, but do not consider it a problem. Another objection is that the NIT subsidizes industries employing low cost labor, but this objection can also be made against current systems of benefits for the working poor.
True flat income tax
As per the definition at the beginning of the article, a true flat tax is a system of taxation where one tax rate is applied to all income with no exceptions.
In an article titled [http://www.economist.com/printedition/displayStory.cfm?Story_ID=3861190 The flat-tax revolution] , dated April 14, 2005, "The Economist" argued as follows: If the goals are to reduce corporate welfare and to enable household tax returns to fit on a postcard, then a true flat tax best achieves those goals. The flat rate would be applied to all taxable income and profits without exception or exemption. It could be argued that under such an arrangement, no one is subject to a preferential or "unfair" tax treatment. No industry receives special treatment, large households are not advantaged at the expense of small ones, etc. Moreover, the cost of tax filing for citizens and the cost of tax administration for the government would be further reduced, as under a true flat tax only businesses and the self-employed would need to interact with the tax authorities.
"Economic Concepts"
*Fiscal drag (also known as Bracket creep)
*Taxable income elasticity (also known as Laffer Curve)
"Tax Systems"
*Consumption tax
*FairTax
*Income tax
*Negative income tax
*Progressive tax
*Real property use tax
*Regressive tax
*Sales tax
*Value added tax
*Steve Forbes, 2005. "Flat Tax Revolution". Washington: Regnery Publishing. ISBN 0-89526-040-9
*Robert Hall and Alvin Rabushka, 1995 (1985). " [http://www-hoover.stanford.edu/publications/books/flattax.html The Flat Tax] ". Hoover Institution Press.
*Anthony J. Evans, " [http://www.openrepublic.org/open_republic/20050701_vol1_no1/articles/20050619_ft.htm Ideas and Interests: The Flat Tax] " "Open Republic" 1(1), 2005
* [http://www.heritage.org/Research/Taxes/bg1765.cfm The Laffer Curve: Past, Present and Future] : A detailed examination of the theory behind the Laffer curve, and many case studies of tax cuts on government revenue in the United States
* [http://www.econtalk.org/archives/2007/04/rabushka_on_the.html Podcast of Rabushka discussing the flat tax] Alvin Rabushka discusses the flat tax with Russ Roberts on EconTalk.
Flat Tax — 〈[ flæ̣t tæ̣ks] f.; , es [ ksız]〉 Form des Steuertarifes mit einem einheitlichen, vergleichsweise niedrigen Steuersatz anstelle von unterschiedlichen Tarifklassen, der einen allgemeinen Steuerfreibetrag für das Existenzmininum u. Verzicht auf… … Universal-Lexikon
Flat Tax — Mit Flat Tax (kurz für Flat Rate Tax) oder Einheitssteuer wird ein einstufiger Einkommensteuertarif bezeichnet. Der Grenzsteuersatz ist konstant und mit dem Eingangs und Spitzensteuersatz identisch. Eine Einheitssteuer mit einem Grundfreibetrag… … Deutsch Wikipedia
Flat-Tax — Mit Flat Tax (kurz für Flat Rate Tax) oder Einheitssteuer wird ein einstufiger Einkommensteuertarif bezeichnet. Der Steuersatz ist konstant und damit gleich dem Grenzsteuersatz. Das Konzept der Flat Tax wurde von Robert E. Hall und Alvin Rabushka … Deutsch Wikipedia
Flat tax — Mit Flat Tax (kurz für Flat Rate Tax) oder Einheitssteuer wird ein einstufiger Einkommensteuertarif bezeichnet. Der Steuersatz ist konstant und damit gleich dem Grenzsteuersatz. Das Konzept der Flat Tax wurde von Robert E. Hall und Alvin Rabushka … Deutsch Wikipedia
Flat Tax — A system that applies the same tax rate to every taxpayer regardless of income bracket. A flat tax applies the same tax rate to all taxpayers, with no deductions or exemptions allowed. Supporters of a flat tax system propose that it would give… … Investment dictionary
flat tax — A tax which is levied at the same rate on all levels of income. Antithesis of progressive tax . Bloomberg Financial Dictionary * * * flat tax flat tax ➔ tax1 * * * flat tax UK US noun [C, usually singular] ► TAX a tax that is paid at a single… … Financial and business terms
Flat tax — Impôt à taux unique L impôt à taux unique ou impôt proportionnel (flat tax en anglais) est un système d origine ancienne qui impose tous les membres d un groupe (comme des citoyens ou des entreprises) au même taux, contrairement à l impôt… … Wikipédia en Français
flat tax — proportional tax A tax with a single rate (as opposed to one in which the rate of tax increases with the size of the tax base) and with no reliefs or exemptions apart from a standard personal allowance. In recent years a flat rate of income tax… … Big dictionary of business and management
flat tax — proportional tax A tax with a single rate (as opposed to one in which the rate of tax increases with the size of the tax base) and with no reliefs or exemptions apart from a standard personal allowance. In recent years a flat rate of income tax… … Accounting dictionary
flat tax — /ˈflæt tæks/ (say flat taks) noun → flat rate tax … Australian-English dictionary


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LLS
Last year, the impending implementation of International Maritime Organization's rule mandating the use of lower-sulfur marine fuels starting January 1, 2020, widened the price spread between rule-compliant 0.5%-sulfur bunker and the 3.5%-sulfur marine fuel that has been a shipping industry mainstay. Traders' thinking was that demand for high-sulfur bunker would evaporate in the run-up to IMO 2020, as the new rule is known. But since early January, the spread between low- and high-sulfur fuel at the Gulf Coast has narrowed from nearly $11/bbl to less than $2/bbl. The culprit is a shortage of heavy-sour crude caused by a number of factors. Today, we begin a two-part series on low-sulfur vs. high-sulfur fuel and crude values as IMO 2020 approaches.
We Gotta Get Out of This Place - Midland Crude Production, Takeaway Capacity and Price Differentials
Permian crude oil production continues to march steadily upward, headed toward 3.0 MMb/d sometime in the next few months. Most of the recent growth responsible for pushing total U.S. output past 10 MMb/d has come from increases in Permian volumes. Pipeline capacity out of the super-hot play is on the ragged edge of maxing out, and a myriad of new projects to relieve capacity constraints are in the works. Why then has the price differential between Midland, TX, and the Gulf Coast dropped over the past few weeks? Why did the Brent vs. WTI/Cushing spread crater? And what does this all mean for Midland-to-Gulf Coast transport deals getting struck for $2.00/bbl or less? Today, we look at these developments, try to make sense out of the Permian/Midland crude oil market, and consider what the future might hold for West Texas barrels moving to the Gulf Coast.
Longneck Bottle - Brent versus WTI Differential, Pipeline Bottlenecks and Crude Oil Exports
Two months ago, U.S. crude oil exports skyrocketed, and they have averaged 1.6 MMb/d since mid-September, driven by a Brent-WTI differential above $6/bbl — higher than it has been in over two years. At one point, the steep differential and surging exports were blamed on Hurricane Harvey, then on renewed OPEC discipline and a political risk premium associated with a shakeup in the Saudi hierarchy. But the reality is that these factors are only small pieces of the equation, with pipeline transportation bottlenecks from Cushing and the Permian down to the Gulf Coast being much more important factors in the widening Brent-WTI price spread. Today, we begin a blog series examining how these pipeline capacity constraints triggered the expanded price differential, and how the differential then enabled high crude oil export volumes.
Heavy Fuel - The Narrowing Light-Heavy Crude Oil Spread And What It Means for U.S. Refineries
Since last winter, the price gap between light crude oil and heavy crude — otherwise known as the light-heavy differential — has narrowed considerably. In February, the price difference between Louisiana Light Sweet crude (LLS) and heavy Maya crude on the Gulf Coast was almost $10/bbl, providing an advantage to refiners who have invested in cokers and other equipment that allows them to run a heavier crude slate. But since June Maya has on average sold for only about $5/bbl less than LLS. Today we examine the shrinking price gap between light and heavy crude and its effect on coking and cracking margins.
I Got Storage (I Feel Good) – Evolving Gulf Coast Crude Pricing and New Pipelines To St. James
Tuesday, 04/19/2016
A year ago (April 2015) the price spread between Light Louisiana Sweet (LLS) the St. James, LA benchmark light crude and Permian West Texas Intermediate (WTI) delivered to Houston was roughly $2.50/Bbl. In the first quarter of 2016 – following the end of the crude export ban and the crash of crude prices below $40.bbl – that spread narrowed to 30 cents/Bbl. This price differential change has thrown a wrench into traditional Gulf Coast price relationships that encouraged the flow of crude east from Houston to Louisiana. Further changes are expected as pipeline projects due to be completed in the next two years will deliver Bakken and Permian crude direct to St. James. Today we wrap up our series on St. James with a look at changing crude prices and flows.
I Got Storage (I Feel Good) – The St. James Crude Hub Continues to Develop
The St. James, LA crude trading hub provides feedstock to 2.6 MMb/d of regional refining capacity as well as refineries in the Midwest. St. James is also an important distribution hub for crude from North Dakota, South Texas, the Gulf of Mexico and onshore Louisiana as well as imports arriving at the Louisiana Offshore Oil Port (LOOP). Crude storage and midstream infrastructure at St. James has been expanding in recent years as the trading hub handles larger volumes of domestic production. Today we begin a new series looking at infrastructure and crude pricing at St. James.
Yesterday (All My Exports Seemed So Far Away) – The Brent/WTI Spread in 2016 and Beyond
Following the news that regulations restricting the export of U.S. crude had been lifted, West Texas Intermediate (WTI) crude rallied to a slight premium over its international counterpart Brent for 6 days at the end of December 2015 – apparently leveling the playing field between the two rival light sweet grades. Is this the green light for a surge in U.S. crude exports? Not hardly. In fact, it is the other way around. Prices for WTI need to be well below Brent for exports to make economic sense and – according to the futures market – that is not happening anytime soon. Today we conclude our analysis of the Brent/WTI price relationship with a look forward to 2016.
The End of The Line – How New Oil Pipelines Could Impact Bakken East Coast Rail Shipments
Yesterday (August 3, 2015) Brent crude closed under $50/Bbl for the first time since January 2015. At that price expensive crude-by-rail (CBR) freight costs to the East Coast leave Bakken producers with netbacks not much over $30/Bbl. Yet CBR shipments to the East Coast were still over 400 Mb/d in May 2015 according to the Energy Information Administration (EIA). By 2017 there should be adequate capacity to get all Bakken crude to market by pipeline. But direct pipeline competition against rail to the East Coast is not expected until at least 2020. Today we look at the future of East Coast CBR.
Keep On Pushing – The Cycle of Canadian Crude Production And Discounts
Western Canadian Select (WCS) – the benchmark for Canadian crude sold at Hardisty in Alberta fetched just $32.29/Bbl on Friday (July 24, 2015) down 60% from $81.34/Bbl a year ago in July 2014. That year has seen big changes in the U.S. oil market with drilling rig cutbacks and declining new production rates. The challenges for Canadian producers have not changed much in the short term – with transport capacity to market still top of the list. Trouble is that every time transport congestion occurs it pushes price discounts higher and lowers producer returns. Today we discuss the relationship between Western Canadian crude production and prices.
They Tried To Make A Crude Price Rehab – Balancing Fundamentals Keep A Lid On Prices
U.S refiners have been processing a lot of crude so far this summer and utilization rates remain high. Crude production has leveled off and is expected by the Energy Information Administration's (EIA) Short Term Energy Outlook to decline slightly during the second half of 2015. But the early summer market sentiment that drove crude prices up to $60/Bbl on the back of these fundamentals appears to have lost steam. Today we conclude our analysis of short term crude price prospects.
Dancing In The Dark – Gulf Coast Condensate Splitter Economics Update
Average margins for a Gulf Coast condensate splitter have been about $5/Bbl better in 2015 than they were in 2014 but are still about $4.75/Bbl worse than an equivalent Gulf Coast 3-2-1 crack spread. The economics of condensate splitters have also yet to be tested in an environment if – as could happen later this year – crude production begins to decline. Are condensate splitters a better investment than just exporting lightly processed condensate under relaxed export regulations? Two companies considering projects seem to have reached different conclusions recently. Today we continue our update on splitter projects with a look at economics.
Living With A Material Surge – Part 2 – U.S. Refining Performance In the Shale Era
Since the start of the shale oil boom in 2011 crack spread margins for Midwest refiners have averaged about $23/Bbl. Once written off refineries on the East Coast have averaged $16/Bbl this year so far (2015) and California refiners are currently enjoying average $24/Bbl crack spreads. Refinery utilization at the Gulf Coast has averaged close to 90% for the past 4 years and 92% in the Midwest. Today we review buoyant margins and operating levels at U.S. refineries.
Tank House Blues – Brent, WTI and LLS Learning to Live With A Crude Oil Glut
In spite of a brief respite provided last week by increased geopolitical risk in Saudi Arabia, crude oil prices are still in the $50/Bbl range – down more than 50% since last Summer - and inventories at Cushing and on the Gulf Coast continue at record levels. The fall in crude prices was initially consistent across markets with international benchmark Brent trading within $1/Bbl of U.S. benchmark West Texas Intermediate (WTI) and Gulf Coast marker Light Louisiana Sweet (LLS) in January 2015. But since February the relationship between Brent, WTI and LLS has changed as the build up of Cushing inventories weighs on prices in the Midwest. Today we provide an update on crude price differentials at The Gulf Coast.
Don't Stop The Party – Why Gulf Coast Refiners Keep On Dancing After Crude Price Collapse
While producers are licking their wounds after a more than 50% oil price crash, refiners have continued to enjoy healthy margins – even in the face of the largest refinery strike since 1980. Strong refining margins, supported by an ongoing boom in refined product exports, continue to encourage high levels of refinery utilization in the Gulf Coast region – home to more than 50% of U.S. refining capacity. Today we look at how Gulf Coast refiners are faring after the oil price crash.
Start Me Up! The East Houston Market for WTI Crude
A new light sweet crude oil trading market is developing in Houston at the Magellan Midstream Partners East Houston terminal – delivery point for that company's Longhorn and BridgeTex (50/50 owned with Plains All American) pipelines delivering crude from the Permian Basin. Light sweet crude from the Permian is also known as West Texas Intermediate (WTI) the domestic U.S. benchmark crude - widely traded at Cushing, OK where it underpins the CME NYMEX futures contract. Today we review the developing market and the price relationships that underpin it.

redpajama_set_name: RedPajamaCommonCrawl