Thursday, May 25, 2017

US BUDGET,CRUDE SALES , GEOPOLITICAL RISK AND INDIAN TAXATION REFORM

US BUDGET will be passed and it will back by huge spending on that asset class which were ruled y some other countries historically. This is what Made in America will mean over the next decade under Mr. Trump. He is clear that he will eradicate all those countries that were making a living of billion dollars at the cost of his country. OPEC will have to continue for a lifelong cut down in prices and I find more pressure to build up as cheap crude from US economy will enter the markets.

The federal government has stashed away nearly 700 million barrels of oil out which 50% is being taken by the US President to sell in the near term. This selling will fetch the US $16.6 billion by 2027 for its Ambitious Budget funding. This will freeze the spines of many crude producers and will throw out many competitors out of the market for good. Those who are betting on price hike and price down I leave the battle to them. These sales will happen since funding the ambitious budget expenditures will be a key game   and selling crude will help me make this possible. Now it’s a winning proposition for all those countries who import crude. Congress had already recently approved selling down some reserves to raise money for various domestic programs. The administration now wants to increase those sales. Hence this is easier to do since rising interest rates will put pressure on the Earning and GDP growth and hence Government based inflow of capital is highly required which can only be done through sale of this crude reserves. Congress authorized sales from the stockpile in 1996 to pay for deficit reduction, marking the first time it tapped the reserve for reasons other than its stated purpose.

Now war at this point of time will fill up the kitty of the sellers of Crude which will be other side winning proposition for the crude exporters. Its very balanced and wait and watch outlook to figure out how the global crude imbalances will move further and how US will fund its Ambitious Budget.Well the sellof will not be overnight and it will be done judiciously and only thing to keep an eye is on Geopolitical tension which leads to huge use of crude which finally increases the demand.

 As I always dig into some hard core analysis I find that this ambitious crude sales plan have been pushed previously also and now As MR. Donald belongs from the business community he is now being persuaded.  ExxonMobil, which lobbied for congressional bills in both 2012 and 2015 calling for selling this crude in open market was refused hence now it has again started the lobby. Exxon, as well as the American Petroleum Institute (API) and the Independent Petroleum Association of America (IPAA), have long lobbied for this resource to be tapped. This will be big event to watch that how Trump will play his cards.

On the other hand as a member of the International Energy Agency, the United States must store enough petroleum to equal at least 90 days of U.S. crude imports, currently as on last September it  held equivalent of 141 days of imports .

Crude will keep the global economy volatile and much of the long term fiscal prudence In India depends upon its taxation reforms since if crude prices increase tax revenue will help the Indian government to keep floating with a  smile despite of high price of crude paid in dollar terms.

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