LONDON: Global oil demand will grow at its slowest rate for five years in 2025 and U.S. production rises will also taper off, due to U.S. President Donald Trump’s tariffs on trading partners and their retaliatory moves, the International Energy Agency said.
Trump’s tariffs, along with a supply hike by OPEC+ producers, have driven a steep slide in oil prices this month, cutting revenue for producers. The U.S. oil industry, despite calls by Trump to “drill baby drill”, may actually slow activity, the IEA said.
World oil demand this year will rise by 730,000 barrels per day, the IEA, which advises industrialised countries, said in a monthly report on Tuesday, a sharp cut from 1.03 million bpd expected last month. The reduction is larger than a cut made on Monday by producer group OPEC.
“The deteriorating outlook for the global economy amid the sudden sharp escalation in trade tensions in early April has prompted a downgrade to our forecast for oil demand growth this year,” the IEA said.
“Roughly half of this downgrade occurs in the United States and China, with most of the remainder in trade-oriented Asian economies.”
Growth of 730,000 bpd would be the lowest since 2020, when demand contracted due to the COVID-19 pandemic. Excluding the pandemic, it would be the lowest since 2019, when growth was 540,000 bpd, the IEA said in response to a Reuters question.
In its first look at 2026, the IEA predicted a further slowdown in demand growth to 690,000 bpd, due to a fragile economic backdrop and growing penetration of electric vehicles.
In China, economic challenges and a shift towards EVs are tempering oil growth prospects in the world’s second-largest consumer, which had driven rises in oil consumption for years.
HSBC lowers Brent price forecasts on trade tensions, sluggish oil demand
Global oil prices have dropped by 13% this month to around $64 a barrel, pressured by trade tensions and the decision of OPEC+ producers to accelerate a supply hike in May. Crude edged lower on Tuesday after the IEA report’s release.
Policy responses
Oil-dependent governments are coming under pressure from the price slide, with officials preparing policy responses for a drop in revenue such as issuing more debt and reducing spending.
The drop is also a challenge for U.S. shale producers, who over the last two decades helped to turn the United States into the world’s largest producer.
“The significant drop in oil prices rattled the U.S. shale patch,” the IEA said. “New tariffs may also make it more expensive to buy steel and equipment, further discouraging drilling.”
Together with the impact of Chinese tariffs on imports of U.S. ethane and liquefied petroleum gas, these factors prompted the IEA to cut its U.S. oil supply forecast by 150,000 bpd this year to growth of 490,000 bpd.
Nonetheless, conventional oil projects remain on track, the IEA said, and it sees total supply from outside OPEC+ rising by 1.3 million bpd in 2025, comfortably above the rate of demand growth and suggesting a sizeable surplus.
The IEA’s reduction in its 2025 oil demand forecast follows a similar move by OPEC on Monday, although the Paris-based IEA’s reduction is more drastic.
The Organization of the Petroleum Exporting Countries lowered its forecasts for oil demand this year and next to 1.30 million bpd and 1.28 million bpd respectively. These were both down 150,000 bpd from last month’s figures.
OPEC’s oil demand view is at the higher end of industry forecasts and it expects oil use to keep rising for years, unlike the IEA, which sees demand peaking this decade as the world switches to cleaner fuels.
American Dollar Exchange Rate