Tariffs, global economy and energy markets

Key takeaways:

– Tariffs typically disrupt global trade. The current White House tariffs policy is particularly alarming due to rates and reach, let alone it pits the world’s two largest economies—the US and China—against each other.

– This would significantly slow down the global economy, leading to weaker oil demand. Any deceleration in Chinese oil consumption, in particular, would dampen global demand growth, putting a downward pressure on oil prices.

– Compared to last year, this year’s OPEC’s oil demand forecasts are more pragmatic, having been revised downward by 150,000 barrels per day. Similarly, the IEA reduced its forecast by 300,000 barrels per day – signaling a more cautious outlook for oil demand in the near term.

– Unlike other non-OPEC producers, U.S. oil supply is heavily driven by unconventional sources that are highly responsive to price fluctuations, unlike conventional oil where supply is typically inelastic. Despite Trump’s “drill, baby, drill” mantra, investors’ hesitation and the demand for more concrete action from the Trump administration may decelerate the pace of U.S. supply growth.

– OPEC+’s decision to raise supply amid current market conditions likely reflects one of three strategic rationales. The first is a belief that lower oil prices are here to stay, prompting the group to ramp up output in a bid to protect market share. The second possibility is that OPEC+ anticipates a sudden decline in global supply, positioning itself to fill the gap without crashing prices. Then finally, to punish the stubbornly non-compliant members.

– However, if prices continue to decline, OPEC+ is likely to reverse course, as stabilizing oil prices remains in its best interest to protect member economies from further strain.