The euphoria, which was on display in the latter half of Wednesday, speedily evaporated yesterday. There is possibly a very simple explanation for the return to the gloom and pessimism that characterized investors’ thinking ever since the trade war started to escalate after the infamous press conference in the White House Rose Garden on April 2. All one needs is a pencil and a piece of paper to do the math. As researchers at Yale University point out, the rollback of some of the tariffs hardly lowered the average excise duties. Whilst the highest rates were paused for 90 days, the 10% blanket tariffs, together with the 25% measures on most Mexican and Canadian imports, on autos and steel and aluminium imports, remained in effect. Add to that the most important element of the trade war, the perpetual increase in Chinese import duties and vice versa and all of a sudden, the optics are much less attractive than the relentless equity march the day before yesterday insinuated. Stock indices declined, and ignored moderating US inflation as consumer prices, both headline and core, rose slower than forecast.

As stocks resumed their downward trajectory, oil was given little chance but to oblige and follow. Both crude oil contracts fell around $2/bbl, casually sidestepping confident drawdowns in ARA product inventories as reported by PJK/Insight Global and fresh Iran-related sanctions issued by the US Treasury. It is a tariff-driven market influenced by the loss of confidence in transparent and succinct policymaking. And it is an open question when, if ever, this confidence is re-gained.

Aligning the View

When the current turbulence, precipitated by the trade and tariff wars, is extrapolated to the oil market, the question in the last two months has been whether oil demand will be affected, or whether it is immune from the consequences of erecting trade barriers worldwide. Investors in the equity and bond fraternity have been contemplating recession or inflation, or even the combination of the two, stagflation. Still, bond yields were drifting lower between January and February and remained relatively stable in March. World equities, although retreating somewhat from the February peak, stabilized in March and even produced a half-hearted rally in the second half of last month. There was no perceptible justification to sound the alarm bell on the oil demand front.
Stocks, however, tanked in April. The threat of global recession has become real, and it was widely anticipated that predictions of healthy oil demand growth would be amended. Amidst the unprecedented turmoil experienced since the middle of last week, the EIA needed time to re-assess the potential consequences of the US tariffs on its trading partners and the possible countermeasures. It decided to delay the publication of its latest findings on the global and regional oil balances in its attempt to provide an accurate picture. Well, the verdict arrived yesterday afternoon, and it was not a pretty reading.

It is imperative to stress that the EIA’s US macroeconomic assumptions are based on the S&P Global’s model, which was published in March and does not fully take into account last week’s tariff announcements. For the global economy, Oxford Economics lends a helping hand, whose update was also released in March. Yet, the numbers are telling, particularly on the demand side of the oil balance.

For this year, global oil demand estimates were downgraded for every single quarter. The average cut for 2025 is 490,000 bpd. It is now seen at 103.64 mbpd. Next year, the world will need 104.68 mbpd of oil, down from 105.30 mbpd last month. Demand growth for this year was reduced by 360,000 mpbd and for 2026 by 140,000 bpd. These are bold and hefty downward revisions, which broadly align with the prevailing sentiment in the equity and bond markets. The string that is attached is, the EIA warns, that trade policy developments widen the range of possible GDP growth outcomes; consequently, the forecast carries a huge amount of uncertainty.

The tempest on the supply front was less intense and damaging. Non-DoC (countries outside the OPEC+ producer group) supply is now estimated 40,000 bpd less for this year than a month ago. For 2026, it was lowered more steeply, by 380,000 bpd, which is significantly less than the reduction in total oil consumption. The inevitable conclusion that has to be drawn, therefore, is that the world will need considerably less DoC (OPEC+) oil than projected in the preceding months. On a month-on-month basis, the decline is 440,000 bpd in 2025 and 240,000 bpd in 2026. The absolute figures are 42.39 mbpd and 42.69 mbpd.

Of course, these estimates will only gain sense when they are put against OPEC+ production figures. Although the unwinding of voluntary supply restrictions from within the group will hasten in May, DoC production was left broadly unchanged for both years (well, minuscule reductions of 10,000 bps and 50,000 bpd were observed). This, however, does not change the fact that the ultimate gauge of the projected health of the oil market, stock levels, has been inflated. Global oil inventories, under the latest assumed scenario, will increase by 460,000 bpd in 2025 and 670,000 bpd in 2026, versus 40,000 bpd and 480,000 bpd in March. OECD inventories will finish this year at 2.792 billion bbls and next at 2.854 billion bbls, upward amendments of 68 million bbls and 90 million bbls, respectively. Lots of numbers, an ostensibly gloomier picture, but the salient piece of information the reader is most interested in is the price forecast. Brent will average $68/bbl (well above the current curve) this year and $61/bbl next (slightly below the 2026 strip), a cut of $6/bbl and $7/bbl from last month. Much of the same is anticipated next Monday and Tuesday when OPEC and the IEA issue their versions but whatever the refreshed oil balances imply, one must remember, these are just assumptions, snapshots, if you will, in a dangerously unpredictable economic environment, liable to sudden corrections.

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