Development in oil demand is predicted to sluggish sharply this 12 months due to the unfavorable affect of US tariffs on commerce, the Worldwide Power Company has warned in its first forecast since Donald Trump’s “liberation day” announcement.
The Paris-based company reduce its expectations for oil demand progress this 12 months by a couple of third from 1.03mn barrels a day to 730,000 b/d and signalled that additional downward revisions had been doable relying on how the US president’s tariff programme advanced.
Roughly half of the anticipated 300,000 b/d decline could be because of decreased demand within the US and China, it mentioned.
“Whereas imports of oil, gasoline and refined merchandise got exemptions from the tariffs introduced by america, considerations that the measures may stoke inflation, sluggish financial progress and intensify commerce disputes weighed on oil costs,” the IEA mentioned.
“With negotiations and countermeasures nonetheless ongoing, the scenario is fluid and substantial dangers stay.”
The IEA evaluation comes as merchants and economists try to foretell the long-term affect of the sweeping tariffs Trump imposed on all main US buying and selling companions on 2 April solely to pause a few of the measures per week later amid a world market rout.
Costs for Brent crude, the worldwide benchmark, dipped below $60 a barrel final week for the primary time in 4 years as merchants weighed the prospect of a recession earlier than Trump pulled again, suspending many of the tariffs for 90 days pending negotiations.
On the top of the sell-off, the collapse in oil costs mirrored merchants pricing in a world demand shock bigger than 1mn b/d, in response to Colin Fenton, head of commodities analysis at New York-based 22V. That may have been in keeping with a “moderately-severe international recession,” he wrote in a observe for shoppers.
The pause has eased recession fears for now, serving to Brent get better to $67.57 a barrel by Tuesday morning. However on the identical time, Trump boosted retaliatory tariffs on China to 125 per cent, doubling down on his commerce struggle with the world’s second-largest economic system.
The sharp escalation in commerce tensions has prompted the IEA to decrease the financial progress assumptions that underpin its forecasts. It now expects international GDP to develop by 2.4 per cent this 12 months and by 2.5 per cent in 2026, down from a earlier forecast of three.1 per cent in each years.
In consequence, annual demand progress was anticipated to sluggish additional subsequent 12 months to 690,000 b/d “as decrease oil costs solely partly offset the weaker financial surroundings”, it mentioned in its first forecast for 2026. In 2024, international demand grew by about 770,000 b/d to 102.8mn b/d, in response to the IEA’s figures.
On the identical day as Trump introduced the tariffs, eight members of Opec+, led by Saudi Arabia, mentioned they might unwind provide cuts sooner than anticipated from subsequent month in a shock transfer that had added to the “downward spiral in oil costs” within the first half of April, the IEA mentioned.
The choice was pushed by Saudi Arabia to place stress on different members of the group, which have persistently pumped above their quota, whereas Riyadh has shouldered the vast majority of the cuts, in response to individuals with information of the discussions. Nevertheless, it additionally appeared to have been timed to coincide with the Trump announcement as a way to have the utmost affect on costs, analysts mentioned.
The affect on Opec+ provide was more likely to be “a lot smaller” than the headline improve of 411,000 b/d in Could, as a number of members, together with Kazakhstan, the United Arab Emirates and Iraq, had been already producing effectively above their targets, the IEA mentioned.
Opec additionally reduce its oil demand forecast for 2025 this week however solely by 100,000 b/d. The cartel expects international demand to develop by 1.3mn b/d this 12 months to a median of 105.05mn b/d, it mentioned in its personal month-to-month report revealed on Monday.
The Trump administration has mentioned it desires to develop US oil and gasoline manufacturing by 3mn barrels of oil equal a day by 2028 however the drop in costs was more likely to sluggish US manufacturing progress, the IEA mentioned.
The sell-off had “rattled the US shale patch” the place producers want common costs of at the very least $65 a barrel to drill new shale oil wells, the IEA mentioned, citing the newest survey by the Federal Reserve Financial institution of Dallas in Texas.
Trump’s tariffs may also make it dearer to purchase metal and tools, additional discouraging US drilling, it added, because it revised down anticipated progress in US oil manufacturing this 12 months by 150,000 b/d to 490,000 b/d.
In whole, international oil manufacturing was more likely to develop by 1.2mn b/d this 12 months, down from a earlier forecast of 1.46mn b/d because of the anticipated slowdown in US shale exercise and decreased provide from Venezuela due to stricter enforcement of US sanctions.
