'Paradigm shift' in world economy to slash oil demand growth by one-third: IEA

Global oil demand growth prospects are rapidly shrinking as drastic trade tariffs threaten to hit consumption in the US and China, the International Energy Agency said in its monthly oil market report published April 15.

Responding to a "paradigm shift in the global economy," the IEA now sees world oil demand growing by just 730,000 b/d this year, roughly two-thirds of its previous forecast, to reach 103.5 million b/d.

Seeing a prolonged fallout from a new high-tariff environment initiated by US President Donald Trump on April 2, growth could slow to just 690,000 b/d in 2026, according to new guidance from the Paris-based energy watchdog.

"Within a matter of days, the outlook went from solid, if subpar, economic growth to the possibility of recession and expectations of a period of heightened protectionism," it said.

Based on its latest figures, the IEA expects a global oil supply overhang of almost 700,000 b/d in 2025, rising to roughly 1 million b/d in 2026. It sees growth in non-OPEC+ supply alone "comfortably eclipsing" consumption growth next year.

The IEA had already begun trimming its demand outlook on fears of underwhelming consumption data, warning that key growth markets such as China, India and Southeast Asia could suffer the effects of a deteriorating trade environment.

The IEA said emerging Asian economies could consume roughly 600,000 b/d more oil in 2026 than in 2025, while OECD demand is bound for a year-over-year decline.

The US and Chinese demand are among the most exposed to slowing economic performance, according to the IEA, which sees particularly punitive tariffs exchanged by the two global powers accounting for half the decline in its 2025 global oil growth outlook.

As of April 11, the US and China have pledged import tariffs of 145% and 125% on each other's goods, risking severe repercussions for discretionary spending and industrial growth.

Though tariff policies have already proved highly volatile, the IEA warned that "renewed trade hostilities" between the two countries are "unlikely to be short-lived," cautioning that Chinese oil product imports of LPG and ethane could also be caught in the crossfire.

Globally, the IEA revised its 2025 GDP growth forecast from 3.1% to 2.4%, warning that the shift could disproportionately hit oil-intensive developing economies. In India, demand contracted for a second month, falling 20,000 b/d year over year in March, though Brazil's consumption outperformed expectations.

In an April 4 note, S&P Global Commodity Insights analysts projected that global GDP growth could fall as low as 1.6% in 2025, seeing world oil demand increases drop from 1.2 million b/d to 700,000 b/d or less.

The latest monthly oil market report from the OPEC producers' alliance, released on April 14, agreed that tariffs would constrain the world oil demand growth outlook, but it still sees consumption climbing 1.3 million b/d in 2025.

Supply contraction

The IEA said oil supply growth could also be negatively impacted by the White House's raft of new tariffs, despite OPEC+'s surprise move to lift its output targets.

Its latest report put global supply growth at 1.2 million b/d this year, 260,000 b/d lower than its previous outlook. In 2026, the agency now sees production climbing by 960,000 b/d to reach a total of 105.2 million b/d.

The revision was led by a 150,000 b/d downgrade to the 2025 production outlook in the US, where drilling can be highly price-elastic.

After April 2 tariff announcements shaved roughly $10/b off global oil benchmarks, prices have underperformed the $65/b threshold US shale producers target to drill new wells, the IEA said, warning of likely production shut-ins.

US benchmark WTI crude futures were last trading at roughly $62/b at around 0830 GMT on April 15, leaving jitters among producers as prices recovered from below $57/b on April 7.

Beyond the US, weaker Venezuelan output promises to drag on the overall outlook for OPEC+ supply, the IEA said, reducing its overall output forecast for the alliance by 50,000 b/d in 2025.

Noting falling export activity after a US sanctions crackdown on Venezuela, the report cut its output forecast for the South American oil producer by 100,000 b/d from May onwards.

The agency was unmoved by OPEC+'s April 3 pledge to return 411,000 b/d to the market in May, expecting that recent overproduction among its members would limit the real impact felt across the market.

"A number of countries, including Kazakhstan, the United Arab Emirates, and Iraq, are already producing well above their targets," the report said, adding that compensation plans by some producers could curb future output.

The UAE pumped 3.26 million b/d of oil in March, while Iraq produced 4.32 million b/d, according to new IEA figures, leaving the two countries a combined 790,000 b/d above their implied targets for the month. The recent startup of Kazakhstan's Tengiz oil field expansion has also put it 390,000 b/d above its quota, the IEA said.

Storage dynamics

As global oil prices tumbled, observed crude, NGL and feedstock inventories surged by roughly 40 million barrels and crude oil on the water jumped, the IEA reported, expecting further inventory gains in March.

The rise in crude stocks came despite persistent backwardation for WTI and Brent through March, which priced front-month supply at a premium of roughly 50 cents/b to the month ahead.

Storage draws were partly offset by a roughly 20 million barrel draw on oil product reserves, however, and global inventories continue to sit at the bottom of the previous five-year average.