Biden urges Congress to waive federal taxes on gasoline, diesel through September

US President Joe Biden is calling on Congress to waive federal taxes on gasoline and diesel through September to ease the burden of soaring prices that have supercharged inflation and increased political pressure on Democrats ahead of the US midterm elections.

Although the proposal faces a tough road for approval in Congress, the tax holiday would amount to a 3.5% discount on gasoline, which could increase US gasoline demand by roughly 1%, said Rick Joswick, Platts Analytics head of global oil at S&P Global Commodity Insights.

Still, consumer confidence is faltering and other signs point to slowing economic momentum, said Alan Struth, manager of macroeconomics and demand for global oil at Platts Analytics. He said the roughly 18-cent savings on $5/gal gasoline would be a "welcome respite, but it's no magic elixir."

"Until you get back below $3.50/gal, I hesitate to see a lot of behavioral change, though it might impact confidence on the upside and ultimately lift the overall economy," Struth added.

'Warning shot'

Crude oil futures fell sharply June 22, partially in response to Biden's proposal.

At 1053 GMT, ICE August Brent crude futures were down $4.45/b at $110.2/b, while NYMEX August WTI futures were down $4.82/b at $104.71/b.

Rapidan Energy Group expects oil prices to ease sooner than expected this summer "as demand capitulates and recession approaches," said Bob McNally, who was an energy adviser to former President George W. Bush.

"While this price pullback today may reverse, it's a warning shot that the end of this Putin-driven mini-boom is closer than consensus expects," McNally said in a June 22 email. "All oil booms -- whether fast and furious like the current one since Feb. 24, or slow and steady like 2003-2008 -- end the same way: recessions and big oil price drops."

McNally said he does not expect Congress to approve the fuel tax holiday.

Grasping for options

The federal government collects 18.4 cents/gal for gasoline and 24.3 cents/gal for diesel.

Biden is set to announce the proposal during the afternoon of June 22 at the White House, according to an embargoed briefing. He also will urge states to temporarily waive their own separate fuel taxes, as several have already done.

The White House wants Congress to find other revenue streams to cover the $10 billion in fuel taxes that would have gone to support the Highway Trust Fund, a proposal likely to face resistance in the Senate.

The Biden administration has rolled out a series of policies attempting to ease surging oil prices without seeing much of a dent at the fuel pump. It is selling off roughly one-third of the Strategic Petroleum Reserve over six months; it waived summertime restrictions on gasoline blended with 15% ethanol; and it is urging oil refiners to increase capacity during summer peak driving season.

Global subsidy trend

A US fuel tax holiday would accelerate a recent global trend of marginal tax relief or subsidy implementation across the globe, said Paul Sheldon, Platts Analytics chief geopolitical adviser, pointing to Japan, the UK, France, South Korea, Brazil, India, Nigeria and Kazakhstan.

"The acute political sensitivity of fuel prices typically causes many governments to attempt to cushion the blow to consumers from upward movements in global markets, in turn providing a tailwind to oil demand," he said.

Sheldon said the US' relatively low federal tax reduces leverage compared to most other countries while also highlighting the "limited and imperfect options" that US policymakers hold to influence near-term fuel prices.

"An ongoing, historically large SPR release provides an effective, temporary offset to crude supply disruptions, but other recent proposals such as restricting exports carry more identifiable drawbacks," he said.