Actually, domestic production of oil in the US is better than equilibrium

Incorrect. Right now domestically drilled/fracked oil cannot turn a profit because of the flood of foreign oil. Look it up for yourself. Oil has been crashing for months straight and the price is still falling.

The tax, however, is not just a tariff and would just be on imports but also on domestic production

Incorrect again. The tax is a tariff only applied to imported oil.

The tax would have directly increased the costs of all oil produced in the US

Incorrect again. The tax is in fact only applied to imported oil so it would not effect domestically obtained oil. This is to help our domestic oil companies create more competitive prices so they don't go under.

and meant instant bankruptcy death for all shale oil producers

Right now no domestically obtained oil in the US is turning a profit. Oil supply from Saudi Arabia is crashing the oil market and driving the price down too low for American companies to compete. I am not sure as far as shale oil goes though because that is slightly different.

Saudi's and OPEC who are losing money from their perspective trying to keep the prices low

Well right now they are flooding the market with supply, and their oil is the only oil being purchases as of late, so actually it is giving them significantly more business, even if they get paid less for the physical oil. They are trying to bankrupt American oil companies.

It's all moot, the tax is a dead issue, with Republicans in the house round-filing the entire presidential suggested budget.

Not necessarily. Many Republicans support a similar kind of tax since it actually helps domestic oil companies stay competitive. Why Donald Trump has just recently been talking about putting a tariff tax on all imported goods from China (though he would not do it with oil). It is easily something establishment Republicans can get behind.