2. Tax law's effect on big oil starts emerging
Breaking Tuesday: BP announced that the complicated new U.S. tax law would cause a one-time $1.5 billion hit to its upcoming Q4 earnings.
- But longer term, the steep reduction in the corporate rate from 35% to 21% would be positive for future earnings, the U.K.-based multinational with extensive U.S. operations said Tuesday.
Why it matters: The announcement is among the early signs of how the big new tax law will affect the energy sector.
ICYMI: Last week, Royal Dutch Shell similarly said that it expects the new law, notably the lower corporate rate, to be "favorable to Shell and to its U.S. operations," but also warns of a near-term hit.
- It didn't provide a specific figure, but said: "[O]n the basis of the third quarter 2017 financial statements, Shell would have incurred an estimated charge to earnings of $2.0 to 2.5 billion primarily driven by a re-measurement of its deferred tax position to reflect the lower corporate income tax rate."
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State of the market: Via Reuters, "Oil prices posted their strongest opening to a year since 2014 on Tuesday, with crude rising to mid-2015 highs amid large anti-government rallies in Iran and ongoing supply cuts led by OPEC and Russia."
Hmmmmm: Last week the U.S. Energy Information Administration reported that total U.S. production was slightly over 9.75 million barrels per day in the week ending Dec. 22.
- This is actually 35,000 barrels per day less than the prior-week average, signaling the first weekly dip since Hurricane Nate took a bunch of Gulf of Mexico production temporarily offline in mid-October.
- We'll be watching to see if it's a blip or something more.