‘I’ll give you anything you ask for. As long as it’s not something I don’t wanna give.’ 

The US President to the UK’s Prime Minister in the movie, Love Actually.

A turbulent first week of the new US President confirmed what has been repeatedly promised for eight years: to make America great again at any cost. The end justifies the means, and whether it is through coercion or intimidation depends on one’s political stance. Yet, his determination to achieve his goal is manifested in what appears to be often contradictory policymaking, at least and hopefully only on a rhetorical level.

In a heated telephone call with the Danish Prime Minister, he reiterated his claim for Greenland on national security grounds. Yet, it is casually forgotten that the ‘ridiculous’ Russian-Ukrainian war started on, yes, you guessed it, national security grounds. The conflict will end by putting pressure on OPEC to increase production and pushing down oil prices, depriving Russia of petro-dollar revenues, and effectively weaponizing black gold. It will not help to accomplish his campaign promise of championing the US shale sector and supporting US oil production.
Cheap oil will help lower inflation, the thinking goes. It will lead to declining interest rates, which global central banks must adhere to immediately. Anyone, who does not manufacture in the US will face the unbearable burden of tariffs. He will push Saudi Arabia to invest more than the planned $600 billion despite envisaging cheaper oil. The ultimatums came together with his demand for respect from other nations. It is an axiom that attaining it is almost given for American strength but not for American contemporary ideals.

As the foundation of economic wars with allies and rivals is laid down, he pulled the US out of the Paris Climate Accord and the WHO and might do the same with the WTO and the IMF. The global rule-based order is being obliterated in front of our eyes, and international disputes will be settled by force resulting, in chaos and animosity.
His pledge to lower oil prices pushed WTI and Brent around 3% lower last week. The move south continues this morning because of the contracting Chinese manufacturing sector. Stock indices received a boost from his softening stance on China pending selling TikTok, deregulating banks and tech companies and the announced $100 billion AI infrastructure project. A nervous bond market, on the other hand, sent yields higher from Monday’s low as the danger of tariff-induced inflationary pressure clearly occupies investors’ minds. Donald Trump has created a troublingly equivocal political, social and economic environment, one where his actions will probably take over the role of shaping views and sentiments from words shortly. And herein lies the silver lining. Mr Trump must not be judged on his norm-busting narrative, his partisan inaugural speech or his phone conversation with the Danish PM. He must be judged on merits, on how far he is willing or allowed to go by the legislature, the Republicans and the stock market in implementing his currently contentious agenda.

Precarious Support from Oil Demand

The performance of any economy and the need for oil are joined at the hip. From the occasional painful, but usually brief contractions, such as the one experienced in 2008-2009 or the Covid-induced devastation of 2020, global and regional economies tend to expand. Firstly, the world’s population, particularly now in the developing part, is growing relentlessly. It leads to increased industrial activity, transportation needs and generally to a continuous rise in consumption of goods and services. Technological advances, AI for example, also support demand for energy, part of which is satisfied by oil products.

Consequently, if the economy expands, oil demand grows. Looking back at the last 24 years, every time the global economy inflated, oil consumption also ascended. As mentioned above, the two exceptions were the financial crisis and the Covid-19 pandemic. In 2008 the global economy contracted by 0.4%, according to the IMF (we use IMF data throughout the note) and oil demand declined by 900,000 bpd (and IEA data for oil consumption apart from the US where EIA estimates are applied). During the 2020 health crisis, the global economy shrank by 2.7% dragging oil demand down by 9.2 mbpd.

It is, therefore, only reasonable to assume that economic and oil demand growth are closely related. And they are. Between 2001 and 2025 this correlation has been 88% globally and 86% in the US. Curiously, in the world’s second-biggest economy, it stands at a mere 11% although the Chinese economy and oil demand have grown every single year this century, notwithstanding global crises. Once the connection between GDP and oil demand is established, it can be quantified.

A simple formula suggests that 1% global GDP growth resulted in a global oil demand growth of roughly 380,000 bpd. (It is an anomaly-free average, as the impacts of the financial crisis and the pandemic are viewed as an aberration and purposefully omitted.) In the US, 1% of growth corresponds to an extra 50,000 bpd increase in oil consumption whilst in China the equation shows a 70,000 bpd increase after every 1% expansion in the economy.
This connection in 2024 and the predicted economic/oil demand growth relationship in 2025 shows a deteriorating trend globally and in China. Last year global oil demand increased by 280,000 bpd per 1% growth and this year it is seen at 330,000 bpd, below the long-term average and well under the 2023 reading of 750,000 bpd. In China, the ascent in oil demand per 1% GDP growth is estimated at 40,000 bpd in 2024 and 2025, below the long-term average and well under the 250,000 bpd growth registered in 2023. The US stands out. Although in 2024 its oil demand growth per GDP growth unit was below the average at 20,000 bpd it will jump to 80,000 bpd this year, confirming the consensus that it will outperform other major economies. It is worth noting that next year it will align with the rest as its demand for oil will stagnate despite its economy growing 2.1%.

Declining reliance on oil expressed as a ratio to GDP growth or economic performance is somewhat understandable. The growing relevance of alternative energy is becoming increasingly visible and oil’s role in the energy mix is becoming less salient. It fits into the long-term trend of oil intensity. In 1973, a Columbia University paper estimates, slightly less than 1 barrel of oil was needed to produce $1,000 worth of GDP (2015 prices). Over the past 50 years the efficiency of oil use has drastically improved and by 2019, the year before Covid struck, global oil intensity plummeted to 0.43 barrels per $1,000 of global GDP. It is a fall of 56%. The relevance of oil, relative to other energy sources, is on the descent and humanity uses it in an increasingly efficient way.

The price of oil, of course, will still be determined by the oil balance and the subsequent changes in global and regional oil inventories. The point is that the significance of oil demand, given the continuous decline of oil intensity, will be progressively dwarfed by that of oil supply. For this reason, investors will, for example, likely pay more attention to Donald Trump putting pressure on Saudi Arabia, or on geopolitical developments that might impact pivotal oil-producing regions than to economic developments that could affect oil demand unless a full-blown recession devastates the economy and oil consumption.

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