Goldman Sachs says U.S. border tax would 'blow out' Brent/WTI crude spread

[May 10, 2017]  LONDON (Reuters) - Goldman Sachs commodity strategist Jeff Currie said on Wednesday if the U.S. government were to introduce a border tax adjustment on crude oil imports, the spread between Brent and U.S. futures would widen dramatically.

A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

The principal impact of a border tax adjustment would be to raise the price of domestic crude compared with international grades such as Brent.

"It would blow out the Brent/WTI spread. You could see WTI trade $15 above Brent," Currie told the S&P Global Platts Crude conference.

The premium of Brent crude futures over West Texas Intermediate (WTI) futures is currently around $2.81 a barrel.

The government of President Donald Trump has considered a Republican proposal for a border tax adjustment system that would levy a 20 percent tax on all imports while exempting exports.

Domestic U.S. crude prices would automatically rise, pushing up the cost of anything from gasoline to plastics.

Border tax advocates claim the impact of higher import costs and perceived subsidy for exports would be a rise in the real exchange rate of the U.S. dollar.

"For every non-commodity, the dollar does all the work so that the consumer does not pay the price ... oil does not have that leverage," Currie said.

(Reporting by Julia Payne and Amanda Cooper, editing by Louise Heavens)

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