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Oil Plunges As President Biden Calls For Gas Tax Holiday To Ease Pump Prices

President Biden's call for a Federal gas tax holiday could cost the nation's Highway Trust Fund around $10 billion in revenues.

Updated at 12:32 pm EST

President Joe Biden will ask Congress to suspend the federal gas tax for at least three months Wednesday, while for similar relief from state legislators, as his administration looks ease a key component of domestic inflation in the world's biggest economy.

Federal gas taxes add around 18.4 cents per gallon to unleaded pump prices, as 24.4 cents to diesel, with the revenue collected used in part to fund highway and infrastructure projects. The President's proposal would see those levies suspended through to September, with the $10 billion in lost Highway Trust Fund revenues pulled from other portions of the Federal budget. 

The President is also expected to renew his criticism of oil companies, which he has accused of profiteering from the current energy crisis, a view that was roundly rejected by Chevron  (CVX) - Get Chevron Corporation Report CEO Mike Wirth in an open letter to the White House last night.

"Your administration has largely sought to criticize, and at times vilify, our industry," Wirth said. "These actions are not beneficial to meeting the challenges we face."

"We need an honest dialogue," he added. "One that recognizes our industry is a vital sector of the U.S. economy and is essential to our national security."  

The widely expected move clipped global oil prices in overnight trading -- alongside the impact of new Covid infections in China and the prospect of further business and factory restrictions -- with WTI crude futures for August delivery falling $3.56 in mid-day New York trading to $105.96 per barrel.

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Brent crude contracts for August, the global pricing benchmark, were last seen $3.41 lower at $111.25 per barrel as new supplies from Libya added to bets of a near-term market glut.

Data from the AAA motor club, meanwhile, indicated that U.S. gas prices eased from this week's all-time high to a national average of around $4.955 per gallon last night, a move that still leaves pump prices some 61.8% higher than this time last year.

President Biden has twice tapped the nation's Strategic Petroleum Reserve in order to boost domestic supplies and help ease the politically-charged level of consumer gas prices, but thus far has had little impact beyond reducing already-depleted stockpiles.

Energy Department data last week noted the SPR is sitting at its lowest levels since January of 1987 last week, while overall domestic inventories fell by a weekly record of 7.7 million barrels to just over 511 million barrels.

U.S. crude prices have risen more than 35% since Biden first tapped the SPR in late November, thanks in part to western sanctions on the sale of Russian oil and OPEC's reluctance to boost production amid questions over the pace of global demand. 

Oil prices, in fact, rose 12% in the two weeks following President Barack Obama's decision to release 30 million barrels from the SPR in June of 2011 to offset supply disruptions linked to the civil war in Libya. 

Biden's latest move on gas taxes, as well, may induced the opposite of his desired effect. 

"President Biden’s fight against high gasoline prices ahead of the midterm election has also received some attention, although a potential gasoline tax holiday, while supporting consumers, would support demand, thereby prolong the period of tightness," said Saxo Bank's chief commodity strategist Ole Hansen.