The International Energy Agency and the U.S. Energy Information Administration cut sharply their estimates for oil demand growth in 2025 amid the escalating trade dispute between the United States and China. OPEC was more bullish though it too trimmed its demand forecasts for this year and next. All three organizations cited the negative impact of U.S. tariffs as the reason for the downgrades.
In its April “Oil Market Report,” the IEA slashed its demand forecast for this year by 300,000 barrels per day compared with the March estimate. It now sees demand growing by just 730,000 b/d in 2025, as the “escalating trade tensions have negatively impacted the economic outlook.”
The “reciprocal tariffs” announced by President Donald J. Trump on April 2, a weaker U.S. dollar, turbulence in bond and equity markets, and OPEC+ supply increases have exerted downward pressure on oil prices in recent weeks. These factors and the uncertainty over the likely effect of the tariffs on the global economy have caused extreme price volatility.
Brent crude oil futures closed below $68 per barrel April 17 after trading well above $70/bbl at the start of the month and at one point dipping below $60/bbl after the sweeping tariffs were announced. Although prices have rebounded, they continue to be under pressure amid recession fears, with no indication that the United States and China, the world’s two largest economies, are nearing a resolution to their ongoing tariff tussle.
Oil prices recovered some of their losses April 9 after Trump announced a 90-day pause on many of the planned tariffs. However, he excluded China, hiking tariffs against Beijing to 145%. China has retaliated with a 125% tax on U.S. products and said it would not back down. Chinese Foreign Ministry spokesperson Lin Jian said on April 8 that if the United States persisted with its trade and tariff wars, “China will have no choice but to fight to the end.”
The IEA estimates that “roughly half of the demand downgrade occurs in the United States and China, with most of the remainder in trade-oriented Asian economies.” China is the world’s largest importer of crude oil, and any slowdown in the Chinese economy would have a significant impact on demand prospects with implications for Gulf Arab oil exporters. The IEA pointed out that the downward revision comes after a solid first quarter when demand for oil grew by 1.2 million barrels per day, the strongest growth since 2023.
The IEA also published its first forecast for 2026 demand, slashing its growth estimate down to 690,000 b/d. It noted that “risks to the forecasts remain rife given the fast-moving macro backdrop.” It acknowledged that lower oil prices would likely boost demand but that they would “only partly offset the weaker economic environment.”
The EIA has forecast an even larger drop in oil demand growth for 2025. In its April 10 “Short-Term Energy Outlook,” it slashed its demand forecast by 400,000 b/d compared with the March estimate, but its overall demand growth forecast for 2025 at 900,000 b/d is higher than the IEA’s. It also revised down its estimate for 2026 oil demand growth by 100,000 b/d to 1 mb/d. But it stressed that the forecast was subject to “significant uncertainty,” since “the effect that new or additional tariffs will have on global economic activity and associated oil demand is still highly uncertain and could weigh heavily on oil prices going forward.”
The IEA cited the decision by eight OPEC+ producers to increase oil production starting in April and accelerating in May as exerting downward pressure on oil prices. The EIA also addressed the OPEC+ decision, noting, “We expect global oil inventories will increase starting in the middle of 2025 as OPEC+ members unwind production cuts, production grows in non-OPEC countries, and oil demand growth slows.” As a result, it expects Brent prices to average $68/bbl in 2025 and fall to an average $61/bbl in 2026. Those prices are $6/bbl and $7/bbl lower, respectively, than the previous month’s projection “and reflect more uncertainty around global oil demand growth as well the potential for additional supply from OPEC+ in the coming months.”
OPEC, however, has a more optimistic view and expects robust demand growth even as it lowered its global economic and oil demand growth estimates. In its “Monthly Oil Market Report,” OPEC revised down its forecast by a modest 150,000 b/d to 1.3 mb/d in 2025 and fractionally lower in 2026 at 1.28 mb/d, far higher than the IEA and EIA estimates.
While underlining that its forecast for 2025 was “subject to uncertainties” from tariffs and global economic developments, it argued that its relatively bullish figures are supported by expectations of “strong air travel demand and healthy road mobility … as well as industrial, construction and agricultural activities in non-OECD countries.”
However, all these calculations could be revised further after the International Monetary Fund issued a stark warning April 20 that “global economic growth is expected to decline and downside risks to intensity as major policy shifts unfold.” In an update to its “World Economic Outlook” issued in January, the IMF noted: “The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity.” Its reference case scenario, which incorporates information as of April 4, sees global growth dropping to 2.8% in 2025 and 3% in 2026, down from 3.3% for both years in the January outlook. Growth in the United States is expected to slow to 1.8%, a 0.9 percentage point lower relative to the January projection. Emerging market economies are also expected to slow with “significant downgrades for countries affected most by recent trade measures, such as China,” it added.
In the case of China, OPEC sees robust demand from the transportation and petrochemical sectors. On the latter, it stressed that “the country represents almost half of global petrochemical demand and is currently the second-largest consumer of petrochemical feedstock in the world.” On that basis, it expects Chinese demand to grow by 271,000 b/d to 17 mb/d in 2025. At the same time, it cautioned that the tariffs have led to “a negative spiral of counter-measures by the Chinese government … causing large uncertainty for the economy” that could affect oil demand, although it noted impacts have yet to be fully assessed.
The IEA expects far lower oil demand growth in China and cut its growth expectations for Chinese demand by 75,000 b/d to 155,000 b/d for 2025, reflecting “the macroeconomic and sectoral impacts of renewed trade hostilities between China and the United States.” It added that the impacts of the trade war “appear unlikely to be short-lived,” projecting Chinese oil demand to be only 35,000 b/d higher in 2026 at 190,000 b/d.
The price downturn could also have negative implications for U.S. oil supply growth even if it leads to lower prices at the pump, a key objective of the Trump administration. The IEA estimated that lower prices could slow growth in U.S. shale oil output to 260,000 b/d for 2025, then by a lower 110,000 b/d for 2026. While it maintained that “price elasticity has been decreasing over recent years, meaning short-term price shocks do not present the same impact as they previously did,” the IEA cautioned that price volatility “would likely see increased investor restraint” that would crimp supply growth in the U.S. shale oil patch.
Nonetheless, the IEA continues to forecast that the United States will lead non-OPEC+ supply additions, which it expects to total 1.3 mb/d this year and 920,000 b/d in 2026. “Despite the latest revisions, the United States, Canada, Brazil and Guyana will all hit new record production levels in 2025 and 2026. Combined, these four countries will add close to 1 mb/d, or 75% of this year’s increase and, on the face of it, supply enough additional barrels to meet world oil demand growth for this year and next,” the IEA noted. This implies that there is little room for additional barrels from the OPEC+ producers unless there is a significant increase in demand.
Coupled with its lower demand expectations, the IEA now sees stocks building in all quarters of the year at an average of more than 700,000 b/d and by almost 1 mb/d in 2026. The agency sees the “call” on OPEC+ oil in 2025 – the amount of oil that the alliance needs to produce to meet demand – at 40.8 mb/d, slightly below its first quarter estimate of 40.9 mb/d and below OPEC’s assessment of 42.55 mb/d.
The IEA’s downward revision to 2025 supply growth is largely due to the impact of lower prices on U.S. output and renewed sanctions on Venezuela. On the latter, it expects production to sink from a 2024 average of around 850,000 b/d to just 500,000 b/d from May. This follows Trump’s cancellation in late February of waivers that had allowed Chevron to keep operating in the country while threatening a 25% tariff on buyers of Venezuelan crude.
The impact of sanctions on Russia and Iran presents continued uncertainty for OPEC+ supply. The market is closely watching the indirect nuclear talks between the United States and Iran, which have been accompanied by tighter U.S. sanctions on Iranian oil exports, most of which are shipped to refineries in China.
Amid the price turmoil, the market is waiting to see whether the OPEC+ group of eight producers will continue with the policy of adding supply by unwinding voluntary output cuts. Early in April, members surprised the market by announcing a 411,000 b/d output hike for May, triple April’s 138,000 b/d increase. The move was partly responsible for the slump in oil prices, coming a day after Trump’s tariff announcement.
The actual increase is likely to be much lower as several members are producing above their allocations and are under pressure to compensate for past overproduction. The OPEC Secretariat provided a breakdown of compensation cuts to be implemented to June 2026, including 378,000 b/d of cuts in May, which effectively cancels out the planned increase by the group of eight producers.
That said, the group may well overshoot given that most of the “compensation cuts” are allotted to Iraq and Kazakhstan – 140,000 b/d and 116,000 b/d for May, respectively – and both have serially overproduced beyond their target output in recent months. The group is to decide June output targets May 5 before the OPEC Joint Ministerial Monitoring Committee meets May 28.
All these variables will continue to weigh on markets and make the business of forecasting price direction more complicated than it would be without the fog of tariff wars, price fluctuations, and geopolitical tensions. As the IEA put it in its summary: “With arduous trade negotiations expected to take place during the coming 90-day reprieve on tariffs and possibly beyond, oil markets are in for a bumpy ride and considerable uncertainties hang over our forecasts for this year and next.”
With the global oil outlook increasingly shaped by unpredictable trade policies, sanctions, and geopolitical maneuvering, the balance between supply and demand appears more precarious than ever. Forecasts by leading agencies have diverged sharply, reflecting not just different modeling assumptions but a deepening sense of uncertainty about the future path of the global economy. For now, volatility – fueled by tariff brinkmanship, conflicting production signals, and weakening global growth – is likely to remain the oil market’s defining feature well into 2026.
