Goldman Sachs has provided an analysis of the potential effects of U.S. President Donald Trump’s reciprocal tariffs on the oil market.
The investment bank noted on Tuesday that if the tariffs are imposed at an average rate of 15% across all U.S. trading partners, there could be significant changes in crude oil pricing, refined product margins, and global trade flows.
According to its economists, President Trump announced the global tariffs on April 2, with some exclusions.
While these exclusions could reduce the average tariff increase to around 9 percentage points, the overall impact on the oil market remains uncertain.
Potential effects on crude oil and refined products
Goldman Sachs outlined two possible scenarios for how oil prices and refined product margins could react.
The first scenario assumes a 10% tariff on all imported oil, leading to several key outcomes.
One major consequence would be a widening discount on heavy crude oil.
Since U.S. refiners are equipped to process heavier grades, barrels from Canada and Latin
America would likely be sold at lower prices rather than redirected to other markets.
This would allow U.S. refineries to maintain operations without drastically altering their crude intake.
The bank also noted that refined product prices in the U.S. would rise, particularly in the East Coast and West Coast regions, where imported crude plays a crucial role in fuel supply.
The increase in wholesale and retail gasoline and diesel prices would be more pronounced in these regions due to limited domestic refining capacity for replacing imports.
Goldman Sachs suggested that the tariffs may not significantly boost U.S. crude oil prices or production.
The mismatch between the light crude that U.S. producers extract and the heavier crude that many U.S. refiners prefer means that demand for light oil may only see a modest increase.
Additionally, the impact on global trade flows and shipping rates would be minimal, as most refiners are expected to maintain their existing demand for specific crude grades.
Impact of higher tariffs on global oil markets
If tariffs exceed 10%, the effects on the global oil market could become more disruptive.
According to Goldman Sachs, a larger tariff would increase refined product prices even further, as it would make imported crude and refined products more expensive, especially in coastal regions.
This would also create inefficiencies in the global refining system.
The U.S. would need to process more domestic light sweet crude, while other refiners worldwide especially those less equipped to handle heavy crude would struggle to process displaced barrels from countries affected by U.S. tariffs.
As a result, the global supply of gasoline, diesel, and other refined products could decline, driving up refining margins and fuel prices.
U.S. consumers would feel the impact the most, as refiners would be forced to pay higher prices to keep heavier crude barrels in the domestic market.
Goldman Sachs estimated that light crude prices could see a moderate rise under these conditions.
If U.S. refiners shift toward processing more domestic light sweet crude, global demand for light crude, such as West Texas Intermediate (WTI) and Brent, would increase.
“For every additional 1 million barrels per day (mb/d) of medium crude that U.S. refiners replace with light crude, the price of light oil could rise by around $2 per barrel relative to medium grades,” the bank noted.
However, the bank pointed out that much of the price adjustment could happen through discounts on heavy crude rather than a significant premium on light crude.
