US Border Tax Could Drive NatGas Prices Higher

Bank of America Merrill Lynch said the enactment of a prospective U.S. border adjustment tax could lash U.S. natural gas prices if Mexico retaliates.

A similar border tax scheme, if implemented by Mexico, could spark “a wider trade war,” the investment bank said in a research note on Friday afternoon. “It could severely hurt U.S. natural gas exports and drive down prices at the Henry Hub.”

The Henry Hub, which is located in Louisiana, sets the benchmark price for U.S. natural gas trading.

In Washington, Republican legislators’ proposals include a border adjustment tax, which intends to boost U.S. manufacturing by taxing imports while exempting U.S. business export revenues from corporate taxation.

Last week major U.S. exporters threw their support behind the border tax, but President Donald Trump has sent mixed signals and some U.S. Senate Republicans question whether it would pass muster under international trade rules.

The United States currently sends 5 percent of its annual gas production via pipelines to Mexico, and the country is the biggest buyer of U.S. liquefied natural gas, according to the bank.

“Should a border adjustment tax get enacted as part of a larger corporate tax reform, international crude oil benchmarks could suffer while West Texas Intermediate (WTI) prices may benefit on a relative basis,” the bank added.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza