Both oil and equity prices drifted slightly lower as investor are trying to assess that amidst the chaos caused by Donald Trump’s tariff war, which country or products might be exempted from the punitive measures. This uncertainty will likely remain the impediment to any protracted rally in risk assets. If the overnight plunge in the value of chipmaker Nvidia, due to US export curbs of AI chips to China, is the harbinger of things to come then brace yourself. Yesterday’s dollar strength and the slight retreat in bond yields were rather the function of auspicious quarterly results from US banks than any significant improvement in investors’ sentiment. The ominous and relentless rise in the price of gold serves as a reminder that money keeps migrating over to relatively safe investment classes.

Further good news was provided overnight but again the headlines will implausibly result in a significant brightening of mood. Against an expected growth of 5.1% the Chinese economy expanded by a robust 5.4% in the first quarter of 2025. The better-than-expected performance was precipitated by exporters frontloading shipments ahead of the implementation of US excise duties on Chinese goods and, in all probability, will not be repeated for the rest of the year as the two biggest economies in the world are doing their best to decouple.

Oil came under slight pressure because the IEA lowered its global oil demand growth estimates, discussed below. The 2.4 million bbls build in US crude oil inventories reported by the API last night was more than countered by the drawdowns of 3 million bbls and 3.2 million bbls in gasoline and distillate stockpiles, whilst the ongoing Iran-US nuclear talks keep the geopolitical risk premium at a somewhat elevated level. These developments, nonetheless, pale into significance when compared to the potential impact of tariff concerns. Alas, geoeconomic considerations will remain the main driving force of oil in the foreseeable future.

Downward Demand revisions with Varying Degrees

Before we dive into how the oil balance is shaped in the future it is worth re-iterating the observation from the previous months. Although the views might differ considerably on how much oil is needed or supplied going forward, collecting data from the past is apparently a more effortless undertaking. There is a deviation of a mere 1 mbpd in global oil demand from 2024 and a gap of an almost negligible 10 million bbls in OECD inventories. Whilst the 1 mbpd chasm might be viewed as significant (OPEC estimates global oil demand at 103.8 mbpd for 2024 versus 102.8 mbpd from the EIA) this difference was more than 2 mbpd in March 2024. Absolute OECD oil inventories are projected to have ranged from 2.742 billion bbls (EIA) to 2.752 billion bbls (OPEC) by the end of December last year.

This consensus falls apart again when predicting the oil balance for this year and next. The range for the 2025 oil demand widens to 1.52 mbpd and for 2026 to 2.1 mbpd with the IEA publishing its forecasts for next year for the first time. Recent trends remain intact: the IEA and the EIA broadly agree on global consumption figures with OPEC being the unconditionally bullish outlier. What was, however, unambiguous in the latest set of data was the deteriorating assumptions on global demand. After revising its trade policy baseline, the EIA concluded that there would be less oil demand growth and therefore reduced its outlook for oil demand accordingly. OPEC cut its global and within that US, Japanese, eurozone and Chinese, growth estimates and as a consequence, its oil demand growth. The IEA titled its overview ‘Buckle up’ for the same reason as the other two. It underlined that US tariff measures could lead to inflation or act as a brake on economic growth.

All three agree that the unpredictability and uncertainty created by the capricious and incoherent policymaking of the US administration will lead to a loss of appetite for oil. The extent, nonetheless, swings wider than a pendulum. OPEC cut its absolute demand estimates for 2025 by a meagre 100,000 bpd with the EIA by a hefty 490,000 bpd. The IEA is in between. Ever since the Trump administration started implementing its political, economic and trade policies worldwide consumption was reduced between 130,000 bpd and 680,000 bpd. This year’s demand growth has also been downgraded by 360,000 bpd (EIA), 270,000 bpd (IEA) and 200,000 bpd (OPEC).

Predicted supply from producers outside the OPEC+ alliance was also revised lower. These adjustments only exceeded the demand cuts in OPEC’s view, whilst the other two saw greater damages in consumption. It is also noteworthy that only OPEC expects non-DoC supply growth to outpace the expansion in global oil demand and as a result, it is the only of the three forecasters that envisages rising demand for OPEC+ oil in 2025 from the previous year. This year’s call on OPEC+ stretches from 40.85 mbpd to 42.58 mbpd.

Predicted demand for the group’s oil only carries valuable information if set against the estimated production from member countries. The IEA and the EIA’s views are that the output level will be higher than the call therefore global and OECD inventories will increase throughout 2025; actually, quite decisively in the 2Q-4Q period. Oil prices, logic then dictates, will average below the 2024 price of $79.86/bbl basis Brent.

OPEC sees 42.58 mbpd demand for DoC oil. The group, according to secondary sources and as published by OPEC, produced 41.02 mbpd in March. In other words, there is ample room to increase production without precipitating a supply surplus, something that the group intends to do as they will unwind output restriction much faster in May than previously announced. The only problem is that the market, judging by the price action, does not buy into this. Oil is struggling to gain traction and although it recovered semi-impressively from last week’s carnage it is still meaningfully below the February peak. There is so much uncertainty surrounding the global economy that drawing a firm conclusion would be an irresponsible exercise. Unpredictability, however, leads to pragmatism and if consumers are cautious, if they do not shop, or travel, and if companies do not expand and borrow, the casualty is inevitably growth, both economic and oil demand. A clear strategy and narrative are needed to form an unreservedly optimistic view of the future.

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