Oil industry bracing for potential windfall profits tax after Democrats' big election win

The oil industry fears that Democrats may use their newfound political power to push for a deal with President Trump that would impose a windfall tax on high crude oil prices, Bloomberg reported Wednesday.

Democrats have already proposed legislation that would make companies compensate consumers for high fuel prices, and oil executives are concerned the tax could emerge as part of a broader agreement with Trump in reaction to voters' anger, according to the report.

The legislation introduced earlier this year by Senator Sheldon Whitehouse and Representative Ro Khanna would impose a quarterly tax on oil companies when Brent crude exceeds its average price in 2025—which was ~$68/bbl—with the proceeds helping to fund rebate checks to compensate consumers.

Trump has not called explicitly for a windfall tax, and he even celebrated oil profits at a recent campaign rally, saying companies are "making hundreds of billions of dollars because of what's happened in the Middle East," but he has also shown a willingness to lash out at Big Oil, criticizing Exxon and Chevron in August for "making too much money" after they reported huge Q2 profits.

"Windfall profits taxes don't lower prices for consumers—they discourage the long-term investment needed to strengthen supply, infrastructure, and a more resilient energy system," the American Petroleum Institute said.

Oil futures plunged Wednesday as the Democrats' upcoming control of the U.S. Congress raised hopes for a settlement to the Middle East conflict.

"We feel that a huge amount of geopolitical risk premium has been extracted from the oil market in just three sessions," Ritterbusch & Associates said in a note, and while crude could be poised for another strong advance if Trump opts for another military campaign against Iran, "the midterm results have skewed odds heavily in favor of diplomacy."

A long social media post by Vice President Vance that blamed the heavy Republican losses on the Middle East war added to crude's losses.

U.S. ​inventories of crude oil, gasoline, and distillate all fell last week, the Energy Information Administration said.

Commercial crude oil stocks excluding the Strategic Petroleum Reserve fell by 865K barrels to 409.8M barrels in the week ended October 30 and were 4% below the five-year average for the time of year, the EIA said.

Gasoline inventories fell by 222K barrels to 209M barrels and were 2% below the five-year average, and distillate fuel stocks fell by 3.6M barrels to 99.3M barrels, their lowest level since May 2003 and 13% below the five-year average.

The two major crude oil benchmarks fell for the third straight session, as front-month Nymex crude (CL1:COM) for December delivery plunged 8.3% to $88.12/bbl, and front-month Brent crude (CO1:COM) for January delivery sank 8.7% to $94.62/bbl, the lowest settlement for both since August 31.

U.S. natural gas futures (NG1:COM) rose for the fifth time in seven sessions, with the front-month Nymex contract for December delivery rising 2.2% to $2.959/MMBtu.

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