The US-China trade war has inched closer toward a path of no return, with the escalation between the two superpowers overshadowing the 90-day tariff pause on other nations. As prices fluctuate and demand weakens, OPEC+ remains in control, with flexibility to cut production if needed.
Here is Rystad Energy’s oil market update from Janiv Shah, Vice President, Commodity Markets Analysis – Oil:
“If we see a long-lasting trade war through 2025, Rystad Energy projects a 15% reduction in 2025 global GDP growth – from 2.8% to 2.4% – which would lower our oil demand growth forecast from 1.1 million barrels per day (bpd) to 600,000 bpd – an almost 50% decrease.
The sectors that would be hit hardest in a protracted trade war scenario are the transportation sector, including light-duty vehicles, aviation, trucking and maritime, and the petrochemical sector.
In this scenario, we could see Brent oil prices drop to the $50s.
However, we expect supply corrections and disruptions, along with rising energy demand in the northern hemisphere summer, to keep Brent prices around $70 per barrel.
No resolution on tariffs and sanctions would drive high economic uncertainty, cost increases and delayed investments.
Using a conservative estimate of a 15% decline in global GDP growth – based on the impact of the US-China trade war of 2018-2019 – we could see oil demand growth sputter to just 600,000 bpd in 2025, roughly half of our pre-tariff estimates.
At that time, the tariffs were significantly lower at 25%, compared to the current proposals, as of 14 April, for US tariffs on Chinese goods of 145% and Chinese tariffs on US imports of 125%.
The key question is where the supply correction will come from to stem the oil price decline.
The obvious answer: more OPEC+ production cuts from August onward.
If demand weakens further or external supply grows too quickly, OPEC+ retains the flexibility to slow or reverse production hikes.
OPEC+ is still in control, and it will not allow prolonged price drops without taking action.
At its core, this potential decision reflects OPEC+’s ongoing balancing act.
The group is willing to put more barrels into the market, but only on its own terms.”
Rystad Energy’s estimates suggest that the non-OPEC+ supply growth of more than a million barrels per day from major countries could come under significant risk.
The growth from the top five non-OPEC+ producers – US, Brazil, Canada, Norway, and Argentina — will face downside risks from the initial estimates of 1.2 million barrels per day of non-OPEC+ growth in 2025.
This risk is not just going to come from lower prices, but also from the lack of appetite from the non-OPEC+ crude buyers.
The aggressive drop in Saudi Arabian crude oil Official Selling Prices (OSPs) this month shows that competition for crude demand is heating up.
Considering an aggressive loss of 0.5 million barrels per day of production impact for non-OPEC+ producers, OPEC+ is likely to remain in a strong position to manage the price movements.
A key factor in making the OPEC+ strategy work, however, is compliance.
Some members, particularly Kazakhstan, have struggled to stay within their quotas, producing beyond agreed limits.
OPEC+ has emphasized the need for compensation.
On 3 March 2025, the OPEC-8 reaffirmed their commitment to compensate for overproduction since January 2024, with updated plans submitted to the OPEC Secretariat by 20 March 2025.
These plans, frontloaded to address overproduced volumes earlier, aim for full compensation by June 2026.
The 3 April statement noted that the May hike provides an opportunity to accelerate compensation, particularly for Kazakhstan.
Some of the key factors driving the OPEC+ strategy emanating from its strong position are:
- OPEC+ has spare capacity to produce oil when needed and counter a price spike.
- OPEC+ produces the right quality of oil – medium sour – that oil refineries always need as a base diet.
- OPEC+ has demonstrated will and action when it comes to compliance with cuts.
- OPEC+ policy of rolling cuts and the announced policy to unwind them in a tapered manner through to 26 September helps keep the futures curve backward dated and storage play does not become attractive.
- OPEC+ has modern, sophisticated refineries online pumping products to market while restraining on crude. This puts pressure on the profitability of refineries buying non-OPEC crudes as more products help counter less crude, keeping price spikes in check.
- OPEC+ understands that keeping prices ‘higher forever’ leads to ‘lower for longer’. The group recognizes a price war does not work, and that US shale is not a significant threat.
- OPEC+ knows the right slogan for the future of oil prices is ‘stable for transition’.
Note: Rystad Energy has simulated different global GDP and oil demand scenarios for 2025, given recent tariff events. The analysis is conducted bottom-up based on historical relationships between GDP and oil demand across 12 sectors per global regions, with electric vehicle oil demand displacement modelled bottom-up through sales and fleet figures.
