Growth in oil demand is expected to slow sharply this year because of the negative impact of US tariffs on trade, the International Energy Agency has warned in its first forecast since Donald Trump’s “liberation day” announcement.
The Paris-based agency cut its expectations for oil demand growth this year by about a third from 1.03mn barrels a day to 730,000 b/d and signalled that further downward revisions were possible depending on how the US president’s tariff programme evolved.
Roughly half of the anticipated 300,000 b/d decline would be due to reduced demand in the US and China, it said.
“While imports of oil, gas and refined products were given exemptions from the tariffs announced by the United States, concerns that the measures could stoke inflation, slow economic growth and intensify trade disputes weighed on oil prices,” the IEA said.
“With negotiations and countermeasures still ongoing, the situation is fluid and substantial risks remain.”
The IEA analysis comes as traders and economists are trying to predict the long-term impact of the sweeping tariffs Trump imposed on all major US trading partners on 2 April only to pause some of the measures a week later amid a global market rout.
Prices for Brent crude, the global benchmark, dipped below $60 a barrel last week for the first time in four years as traders weighed the prospect of a recession before Trump pulled back, suspending most of the tariffs for 90 days pending negotiations.
At the height of the sell-off, the collapse in oil prices reflected traders pricing in a global demand shock larger than 1mn b/d, according to Colin Fenton, head of commodities research at New York-based 22V. That would have been consistent with a “moderately-severe global recession,” he wrote in a note for clients.
The pause has eased recession fears for now, helping Brent recover to $67.57 a barrel by Tuesday morning. But at the same time, Trump boosted retaliatory tariffs on China to 125 per cent, doubling down on his trade war with the world’s second-largest economy.
The sharp escalation in trade tensions has prompted the IEA to lower the economic growth assumptions that underpin its forecasts. It now expects global GDP to grow by 2.4 per cent this year and by 2.5 per cent in 2026, down from a previous forecast of 3.1 per cent in both years.
As a result, annual demand growth was expected to slow further next year to 690,000 b/d “as lower oil prices only partly offset the weaker economic environment”, it said in its first forecast for 2026. In 2024, global demand grew by about 770,000 b/d to 102.8mn b/d, according to the IEA’s figures.
On the same day as Trump announced the tariffs, eight members of Opec+, led by Saudi Arabia, said they would unwind supply cuts faster than expected from next month in a surprise move that had added to the “downward spiral in oil prices” in the first half of April, the IEA said.
The decision was pushed by Saudi Arabia to put pressure on other members of the group, which have consistently pumped above their quota, while Riyadh has shouldered the majority of the cuts, according to people with knowledge of the discussions. However, it also appeared to have been timed to coincide with the Trump announcement in order to have the maximum impact on prices, analysts said.
The impact on Opec+ supply was likely to be “much smaller” than the headline increase of 411,000 b/d in May, as several members, including Kazakhstan, the United Arab Emirates and Iraq, were already producing well above their targets, the IEA said.
Opec also cut its oil demand forecast for 2025 this week but only by 100,000 b/d. The cartel expects global demand to grow by 1.3mn b/d this year to an average of 105.05mn b/d, it said in its own monthly report published on Monday.
The Trump administration has said it wants to grow US oil and gas production by 3mn barrels of oil equivalent a day by 2028 but the drop in prices was likely to slow US production growth, the IEA said.
The sell-off had “rattled the US shale patch” where producers need average prices of at least $65 a barrel to drill new shale oil wells, the IEA said, citing the latest survey by the Federal Reserve Bank of Dallas in Texas.
Trump’s tariffs might also make it more expensive to buy steel and equipment, further discouraging US drilling, it added, as it revised down anticipated growth in US oil production this year by 150,000 b/d to 490,000 b/d.
In total, global oil production was likely to grow by 1.2mn b/d this year, down from a previous forecast of 1.46mn b/d due to the expected slowdown in US shale activity and reduced supply from Venezuela because of stricter enforcement of US sanctions.
