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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The Single Biggest Threat To Global Oil Demand Growth


As the U.S.-China trade war escalates, a growing number of analysts and organizations have increased warnings that further trade tensions could dent economic growth, consumer spending, and investment flows globally—all of which could curtail the world’s oil demand growth.

Robust oil demand, geopolitical tensions, plunging Venezuelan production, Libyan outages, and returning U.S. sanctions on Iran’s oil have all combined, at various times, to boost crude oil prices so far this year.

Yet, numerous challenges to the global economic growth have recently emerged, with political uncertainties taking center stage, OPEC said in its closely watched Monthly Oil Market Report (MOMR) on Monday.

Among these political uncertainties, “it is trade-related developments in particular that warrant close monitoring in the near-term,” OPEC said, noting that the strong economic growth forecast assumes that there won’t be significant rises in trade tariffs and current disputes will be resolved soon.

“Rising trade tensions, leading to mounting uncertainties, translating into falling business and consumer sentiment, may provide a significant downside risk to the current relatively positive outlook. Negative impacts on global investments, capital flows and consumer spending may also have a detrimental effect on the global oil market,” OPEC warned.

OPEC has modeled four different scenarios to quantify the likely impact of trade tariffs on the global economy and global oil demand. To be sure, the most likely scenario, according to the cartel, is that the trade spat continues between the U.S. and China, and “the most likely case will not have a significant impact on global GDP or oil demand growth in 2018 and 2019.” In the worst-case scenario, however, global economic growth is seen at 3.66 percent this year and at 3.2 percent next year, compared to a base case forecast of 3.8-percent growth for 2018 and 3.6 percent in 2019. In terms of oil demand growth, in the worst-case scenario where trade tariffs include regions beyond the U.S. and China, OPEC sees demand rising by 1.53 million bpd in 2018, and by just 1.08 million bpd in 2019, compared to the current base case estimates of 1.63 million bpd growth this year and 1.43 million bpd next year. Related: Saudi Arabia And Iran Reignite The Oil Price War

The International Energy Agency (IEA) said last week that global oil supply could become “very challenging” when U.S. sanctions on Iran return, but “trade tensions might escalate and lead to slower economic growth, and in turn lower oil demand.” The IEA has not changed its underlying economic and oil demand assumptions, but “we are mindful that demand growth could cool down later this year and into 2019,” the Paris-based agency said.

Danish Danske Bank sees the U.S.-China trade war likely protracting until the end of the year, saying after last week’s new round of tariffs from both sides that “it is difficult to see the two countries reaching a deal this side of the U.S. midterm elections in November.”

The trade dispute is also boosting the U.S. dollar against emerging-market currencies, and oil consumers in those countries pay more for oil in their local currencies, another potential risk to demand growth.

The stronger dollar, coupled with trade dispute risks, “means questions are being raised about the impact on growth and subsequent demand going forward. This is potentially one of the biggest challenges commodities will face over the coming months,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in the bank’s quarterly Q3 2018 outlook. Related: Is Venezuelan Oil Production Falling Even Faster Than Expected?

In the early months of the second half of 2018, oil prices could be supported by supply concerns over Venezuela and Iran, but those concerns may be replaced later in the year by the market focus shifting toward demand growth that could begin to slow down in emerging economies, according to Saxo Bank.

“Saudi Arabia and Russia seem to have drawn a line in the sand with $80/barrel as the level above which demand destruction could begin to emerge,” Hansen said.

Due to the supply risks, Saxo Bank raised its end-of-year forecast for Brent Crude to $74 a barrel and for WTI Crude to $70, but noted that it is not raising estimates further due to expectation that demand growth worries will begin to emerge in Q4.

Yet, Goldman Sachs, for example, continues to believe that the trade war won’t impact the underlying bull case for commodities, including oil, and that demand will continue to be strong.


Economists, analysts, and investment banks haven’t fundamentally altered their assumptions for global economic growth and oil demand growth, but they all warn that trade disputes are adding yet another—quite bearish—wild card to watch for in oil price trends.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on August 15 2018 said:
    I am of the opinion that the escalating trade war between the United States and China while adverse in nature will hardly affect the global economic growth and thus oil demand. Moreover, sooner or later, the US administration will realize the futility of its intrusive tariffs on China and reverse its stance.

    Still, oil prices don’t like uncertainty and the escalating trade war between China and the US does exactly that.

    Depending on how long the trade war escalation lasts, economic growth could slow a little from 3.9% in 2018 to 3.8% in 2019 with oil demand growth slowing from 1.60 mbd to 1.53 mbd in 2019. However, it is most probable that the tariff war will be over by the end of the year.

    In my opinion, the threat to oil prices and global oil demand from the remaining glut in the market is bigger that the impact of the escalating trade war.

    If the escalating tariffs start to seriously hamper China’s exports to the US, China could easily switch to other markets around the globe. China’s economy is far more integrated in the global trade system than the US economy and also bigger by 24%. Therefore, tariffs or no tariffs, the Chinese economy needs a huge amounts of oil to keep functioning.

    China’s oil imports are projected to top 10 mbd in 2018.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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