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Growth in oil demand is expected to slow sharply this year due to the negative impact of US tariffs on trade, according to the International Energy Agency’s latest forecast. The agency has revised its expectations for oil demand growth this year, lowering it from 1.03 million barrels a day to 730,000 barrels a day. The IEA also indicated that further downward revisions may be necessary depending on the evolution of President Donald Trump’s tariff program.
The reduction in oil demand growth is primarily attributed to concerns surrounding the impact of tariffs on the US and China, with roughly half of the anticipated decline in demand coming from these two countries. The IEA highlighted that while imports of oil, gas, and refined products were exempt from the US tariffs, the potential for inflation, slower economic growth, and intensified trade disputes weighed on oil prices.
The recent escalation in trade tensions led to a dip in Brent crude prices below $60 a barrel for the first time in four years. However, following Trump’s decision to pause some tariffs for 90 days, Brent crude prices recovered to $67.57 a barrel. Despite this temporary reprieve, the IEA revised its economic growth assumptions downward, which influenced its forecast for oil demand growth.
Looking ahead, the IEA anticipates that annual demand growth will slow further next year to 690,000 barrels a day as lower oil prices only partially offset the weaker economic environment. In 2024, global demand reached 102.8 million barrels a day, with growth of about 770,000 barrels a day.
Additionally, the decision by eight OPEC+ members, led by Saudi Arabia, to increase output faster than expected from next month contributed to the downward trend in oil prices in April. However, the agency noted that the actual impact on supply may be smaller than the announced increase, as some OPEC+ members were already producing above their targets.
In a similar vein, OPEC also adjusted its oil demand forecast for 2025, lowering it by 100,000 barrels a day. The cartel expects global demand to grow by 1.3 million barrels a day this year, averaging 105.05 million barrels a day.
The decline in oil prices is expected to have a significant impact on the US shale industry, where producers require prices of at least $65 a barrel to drill new shale oil wells. Trump’s tariffs may further exacerbate the situation by increasing costs for steel and equipment, discouraging US drilling activities. As a result, the IEA revised down its forecast for US oil production growth this year by 150,000 barrels a day to 490,000 barrels a day.
Overall, global oil production is projected to increase by 1.2 million barrels a day this year, down from the previous forecast of 1.46 million barrels a day. The slowdown in US shale activity and reduced supply from Venezuela, due to stricter enforcement of US sanctions, are contributing factors to this revised forecast.
