USOil Plunges as US President Biden Mulls Gasoline Tax Cut

  • USOil
    (${instrument.percentChange}%)

US Gasoline Tax

Energy prices have soared around the world and the US consumers are hit by high gas prices and overall surging inflation, in the aftermath of the war in Ukraine, despite the country's low dependency on Russian oil.

This has created a political headache for President Biden who has seen its popularity plummet and has been trying various measures to alleviate the suffering from the soaring energy prices, with former Press Secretary having attributed the elevated inflation a few months back, to what she called "Putin's price hike". [1]

After a series of releases from the Strategic Petroleum Reserves (SPR), President Biden is now considering a pause on the federal gas tax, as per his comments on Monday, pointing to a decision within the week, which would require action by the Congress. [2]

It looks like an announcement on the issue could come in today's expected address by the US President, with Reuters reporting that President Biden will call for temporarily suspending the 18.4-cents a gallon federal tax on gasoline, according to a source. [3]

Fed Rate Hikes & Stagflation Fears

Reacting to the resurgence of CPI Inflation to new 40 year highs earlier in the month, the Federal Reserve took aggressive action last week and increased rates by 75 basis points, marking its largest increase since November 1994.

Moreover, Mr Powell said that "either a 50 or 75 basis point increase seems most likely at our next meeting" and touted that the "The Committee is strongly committed to returning inflation to its 2 percent objective". [4]

On Friday, policy makers reiterated their resolve to fight inflation in the report they sent to Congress, which talked of "unconditional" commitment to restoring price stability. [5]

This strategy however by the Fed (and other major central banks), creates fears of stagflation and recession, with the US economy having contracted during the first quarter. The Fed downgraded its GDP projections to 1.7% this year, while Unemployment is seen rising as high as 4.1% in 2023. [6]

USOil Analysis

Action taken by the US President Biden has had little impact so far, while the recent output hike announce by OPEC+ did not seem to be particularly effective either.

However, the Fed's aggressive rate hikes and stagflation fears weighed on USOil last week, which was the second worst of the year, while plunging again today as markets digest the news of an imminent gas tax cut.

The commodity has given up important technical levels over the last few days and falls below the daily Ichimoku Cloud. This puts it in a precarious position and exposes it to the May lows (98.21), although the broader 95.39-92.91 region contains key supports that would require strong catalyst.

Despite the recent slump, the oil market is tight and under-supplied, while the Relative Strength Index (RSI) is at oversold levels. As such, sustained weakness may prove hard at this stage.

USOil can react higher and return towards the upper border of the cloud, but will need to break above the EMA200 (mid-113.00s) to regain control and the ability to look again towards last week's multi-year highs (123.69).

Other than the expected address by President Biden, markets also expect the first day of Congress testimony by Mr Powell and US weekly stockpiles in a packed economic calendar.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 22 Jun 2022 https://www.youtube.com/watch

2

Retrieved 22 Jun 2022 https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/06/20/remarks-by-president-biden-during-press-gaggle/

3

Retrieved 22 Jun 2022 https://www.reuters.com/business/energy/biden-expected-call-wednesday-suspending-federal-gas-tax-source-says-2022-06-22/

4

Retrieved 22 Jun 2022 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20220615.htm

5

Retrieved 22 Jun 2022 https://www.federalreserve.gov/monetarypolicy/files/20220617_mprfullreport.pdf

6

Retrieved 01 Jul 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220615.pdf

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