With what President Donald Trump is calling "Liberation Day" set for tomorrow, Goldman Sachs is warning that proposed reciprocal tariffs from the Trump administration could significantly inflate U.S. refined product prices, while offering only modest support to light crude oil prices.
In a research note published Tuesday, Goldman Sachs commodities analyst Callum Bruce outlined two tariff scenarios and their potential effects on U.S. oil markets.
Tariffs In Focus: Oil Exemptions Unclear
Goldman's economists anticipate a 15% reciprocal tariff across U.S. trading partners, though exclusions could reduce the effective rate to around 9 percentage points.
At present, the firm does not include oil tariffs in its base-case forecasts, but acknowledges the historical precedent of partial exemptions, such as those applied during the Canadian tariff episode.
Still, the lack of clarity on whether crude oil and refined products will be exempt has prompted Goldman to sketch out potential outcomes-ranging from mild market shifts to significant price disruptions.
Scenario 1: 10% Universal Tariff On Oil Imports
In this case, Goldman expects that "heavy crude barrels from Canada and Latin America would largely discount and continue to flow," due to both export constraints on Canadian oil and the fact that U.S. refiners are tailored to process heavier grades.
Yet, refined products would see an immediate price impact.
Bruce estimates that U.S. benchmark margins for gasoline - as tracked by the United States Gasoline Fund LP - and diesel in New York Harbor could rise by $6 per barrel, particularly on the coasts, where the lack of domestic refining capacity and limited access to discounted imports amplify price pressure.
On crude prices, the impact would be marginal. "No clear boost to domestic U.S. crude oil prices and U.S. production" is expected, Bruce said, given the mismatch between the light oil the U.S. produces and the heavy crude most U.S. refineries require.
Despite the policy shock, light U.S. crude prices like WTI would see limited gains, as the U.S. produces more light sweet crude than its refineries can efficiently process. This structural mismatch reduces the demand pull on domestic producers, capping any significant upside.
Scenario 2: Tariffs Above 10% Drive Global Market Disruptions
A more aggressive tariff rate could catalyze deeper changes.
"A larger tariff than 10% on oil U.S. imports may increasingly incentivize heavy oil barrels...to find new homes outside of the U.S.," the analyst said.
This shift would lead to "significantly higher refined product prices, especially in the U.S.," as the refining system globally becomes constrained by less-than-optimal crude slates.
Goldman estimates a $2-per-barrel widening of light-to-medium crude spreads for each 1 million barrels per day of medium crude replaced by light crude in U.S. refineries. However, most of that adjustment would likely occur via heavy crude discounts, not light sweet premiums.
The firm identifies 1.2 million barrels per day of seaborne heavy crude at risk of redirection, and an additional 1 million barrels per day of Canadian pipeline crude that could be re-exported through the U.S. Gulf Coast-if infrastructure allows.
Despite the looming tariff announcement, Goldman sees little evidence that markets are pricing in oil tariff risks.
"Current market prices of New York Harbour refined products and Canadian locational crude oil differentials both suggest minimal current risk premia for potential U.S. import tariffs without widespread oil exemptions or oil tariff rate reductions," Bruce said.
