Tariffs Have Made a Weak Oil Demand Outlook Weaker. A Third Straight Year Below 1 Million Barrels Is Now the Base Case
Oil demand growth has been disappointing for two years. In the spring of 2025, the outlook deteriorated further. In its May Short-Term Energy Outlook, the US Energy Information Administration forecast that world consumption of crude oil and other liquid fuels would grow by less than 1 million barrels a day in both 2025 and 2026. Coming after a similarly weak 2024, that would mean three consecutive years below the 1 million barrel mark. In the two decades before the pandemic, world oil consumption grew by an average of 1.3 million barrels a day.
The EIA now expects world GDP to grow 2.8 per cent in both 2025 and 2026. The EIA says that tariffs announced on US trading partners in early April may already have slowed global trade in physical goods, citing preliminary container vessel departure data from Bloomberg. Compared with its January outlook, it cut its 2025 world consumption growth forecast by 0.4 million barrels a day and its 2026 forecast by 0.1 million. Asia bears the brunt because it is where both trade exposure and oil demand growth are concentrated.
Export-oriented manufacturing economies feel tariff shocks quickly, and China's fuel demand was already weakening before the April announcements. Production outside OPEC+ grew by 1.8 million barrels a day in 2024 and is forecast to grow by the same amount in 2025. Put the supply and demand forecasts side by side and the arithmetic is uncomfortable for producers. The EIA's February outlook assumed that OPEC+ would raise crude production by only 0.1 million barrels a day in 2025, with the 2.2 million barrel-a-day voluntary cuts announced in November 2023 phased out gradually by the end of September 2026 and the earlier 1.65 million barrel-a-day cuts extended until the end of 2026.
The EIA estimated OPEC's surplus crude production capacity at 4.6 million barrels a day in 2024, more than double the 2019 level. The structural story of slowing oil demand growth was already in place before April 2025: electric vehicles and LNG trucks in China, efficiency gains in mature economies and slowing population growth.