Tariffs Shake Global Trade Outlook, Oil Falls Despite Energy Exemption

Prompt crude futures fell by more than $4 per barrel this morning, following President Donald Trump’s announcement of sweeping new import tariffs. The sharp reaction underscores growing concern that an intensifying global trade war may pressure the U.S. economy and global demand outlook, with oil markets already digesting a larger-than-expected OPEC+ supply hike.

President Trump unveiled a new trade policy imposing a blanket 10% tariff on all imports, with higher rates on key trade partners: 34% on China, 20% on the European Union, 24% on Japan, and 26% on India. About one-third of all U.S. imports are exempt, but Goldman Sachs’ GIR still estimates the overall effective tariff rate increase at 12.6 percentage points, with room for escalation.

Markets responded swiftly. WTI crude futures dropped over $1.50/bbl as the tariffs were announced, and the S&P 500 futures slid over 3%, signaling broader economic concerns. Major U.S. sectors such as tech, retail, and auto were all sharply lower, while global equity markets also retreated.

China and Europe Vow to Retaliate

China rejected the move and pledged retaliatory tariffs. Its Ministry of Commerce demanded an immediate reversal, and previous experience suggests energy could be a lever in its response. China has previously imposed tariffs on U.S. crude, LNG, and coal, effectively halting bilateral energy trade in those sectors.

The European Union is preparing its countermeasures, including digital service taxes and potential tariffs on American goods. France and Germany have signaled a tougher stance this time, while Spain has proposed a €14.1 billion tariff response plan.

Energy Imports Exempt

While the tariff action spans a broad range of goods, energy imports—including crude oil, natural gas, and refined products—were notably excluded. The White House confirmed this exemption to prevent direct upward pressure on U.S. fuel prices.

This strategic carve-out also serves a diplomatic purpose. Several countries have recently expanded energy purchases from the U.S. in hopes of gaining tariff relief. The exemption casts doubt on whether these efforts will now continue or if the energy trade will be weaponized in retaliation.

Still, the exemption may not shield the U.S. energy sector completely. If partners like the EU or China decide to target American oil and gas exports, retaliatory tariffs could hit LNG, refined products, and crude shipments—especially since the U.S. is the world’s top exporter of LNG and refined products and ranks fourth in crude oil exports.

OPEC+ Raises Output, EIA Reports Mixed Inventory Data

OPEC+ added to market pressure by announcing a 411,000 bbl/d supply increase starting in May. This move compresses what was expected to be a gradual production hike over three months into a single jump, possibly anticipating softer demand.

The EIA reported a 6.2-million-barrel draw in crude inventories last week—against expectations of a 2.1 million-barrel draw—yet total U.S. inventories (excluding the SPR) climbed to nearly 440 million barrels, the highest since July 2024. Cushing also saw a 2.4 million-barrel build. Distillate inventories, which include diesel, increased slightly by 0.3 million barrels and remain 6% below the five-year average, highlighting ongoing tightness in diesel supply.

Risk of Recession Weighs on Dollar and Oil

The dollar fell to its worst single-day performance in over two years as fears of a global slowdown grew. UBS, Goldman Sachs, and others revised growth forecasts downward, with several now projecting U.S. GDP growth near zero for the remainder of 2025. Oil traders are increasingly factoring in these macroeconomic headwinds, as tariffs introduce uncertainty not just in trade, but in consumption patterns.

While the tariffs do not directly affect energy prices for now, they could damage global growth, reducing demand for oil and fuel products. Add to that the increase in OPEC+ supply, and crude markets may continue to feel pressure.

Bottom Line

President Trump’s tariff escalation may be aimed at reshaping global trade, but its ripple effects are being felt far beyond manufactured goods. As energy trade becomes a potential bargaining chip and global growth faces new threats, oil markets are reacting with caution. For now, energy imports remain exempt—but with retaliatory threats looming, that status could be temporary.