The International Energy Agency slashed its forecasts for global oil demand growth by a third for the year ahead, and warned that it could make further downward revisions depending on whether a trade war develops.
The Paris-based agency had previously forecast that the world’s appetite for crude, which is a key economic indicator, would rise by 1.03m barrels a day this year to a record high.
But after Trump’s “liberation day” tariffs on global trade it has cut its forecast growth to 730,000 barrels a day. Oil demand growth could slow further next year to 690,000 barrels a day due to “the weaker economic environment”, 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 agency said.
The benchmark price for oil fell from almost $75 a barrel to four-year lows of below $60 a barrel in under a week after Trump set out a swathe of global tariffs on trade, including particularly punitive rates for Chinese goods.
Oil prices have reclaimed some ground, after Trump paused some of the tariffs for 90 days, pending negotiations. But fears over a global economic slowdown have remained, keeping an oil market recovery in check.
Big banks have revised down their forecasts for the oil price to account for a potential global economic recession. The Swiss bank UBS cut its price forecast by $12 a barrel to $68 a barrel for this year while Goldman Sachs said it expected the benchmark crude price to average $63 a barrel this year, and fall further to $58 next year.
The IEA warned that the falling oil market prices triggered by Trump’s trade tariffs were likely to upend his own election promise to expand the country’s oil and gas industry by urging producers to “drill, baby, drill”.
US shale producers need global market prices of at least $65 a barrel to drill new shale oil wells and make a profit, according to the IEA, and the industry could now also face higher costs on importing steel and drilling equipment as a result of the tariffs.
The agency has revised down its forecasts for US oil production growth this year by 150,000 barrels a day to 490,000 barrels a day. Meanwhile, the countries which make up the OPEC oil cartel and their allies have said they will increase their collective oil production by 411,000 barrels a day – although the increase may be smaller in reality because some countries are already exceeding their quotas.
The IEA warned that risks to its forecasts “remain rife given the fast-moving macro backdrop”.
