Global oil markets are shifting beneath the weight of economic uncertainties and a surging wave of electric vehicle (EV) adoption. In its May Oil Market Report, the International Energy Agency (IEA) warned that, after a surprisingly robust first quarter, demand growth for the remainder of 2025 will cool materially signaling a pivotal moment for producers, refiners and investors alike (IEA, Reuters).

Economic Headwinds Weigh on Demand

In the first quarter of 2025, world oil demand surged by 990,000 barrels per day (bpd)—driven by post-winter heating needs in Europe, resilient activity in North America and China’s gradual post-COVID reopening. Yet the IEA now projects that growth will slump to just 650,000 bpd for the remainder of the year, bringing the full-year average to 740,000 bpd, slightly up from last month’s 730,000 bpd estimate (Reuters, IEA).

“Signs of a slowdown in global oil demand growth may already be emerging,” the report cautioned, pointing to softer-than-expected deliveries in China and India in April and May.

This moderation reflects a confluence of factors: rising borrowing costs in advanced economies, muted industrial output, and consumer belt-tightening amid higher food and utility bills. The IEA attributes a significant portion of the downward revision to these near-term economic headwinds, which are expected to temper travel, freight and manufacturing activities through year-end (IEA).

Record Electric Vehicle Sales Curtail Oil Consumption

Perhaps no trend is more transformative than the ongoing EV revolution. According to the IEA’s latest Global EV Outlook, electric car sales are on track to surpass 20 million units in 2025, accounting for over 25% of all new light-vehicle registrations up from around 17 million in 2024. In the first three months of 2025 alone, EV sales jumped 35% year-on-year, led by a near-50% penetration rate in China.

As EVs replace internal-combustion vehicles, demand for gasoline and diesel will face structural headwinds. In Europe, fading subsidies have slowed growth, yet EV market share remains near 20%. In the United States, EVs already represent one in ten cars sold. Emerging markets in Asia and Latin America are also experiencing rapid uptake, with sales surging over 60% in 2024 alone.

“With more affordable models reaching new markets and charging infrastructure expanding, electric-vehicle adoption is no longer a niche phenomenon it’s reshaping how much oil we need,” the IEA observes (IEA).

Global Economic Uncertainty and Trade Tensions

While recent trade de-escalation such as the 90-day U.S.-China interim agreement signed on 12 May 2025 provided some relief, the IEA warns that “increased trade uncertainty is expected to weigh on the world economy and, by extension, oil demand” (IEA). Fluctuating tariffs, supply-chain disruptions and geopolitical flashpoints continue to inject caution into corporate capex plans and consumer spending.

In the United Kingdom, for example, 0.7% GDP growth in Q1 2025 placed it at the top of the G7, yet concerns over rising mortgage defaults and utility-bill pressures dampen longer-term optimism (The Guardian). Across the Atlantic, warnings from banking leaders like JPMorgan’s Jamie Dimon that a U.S. downturn remains possible have added to the broader sense of economic fragility.

Emerging versus OECD Regions

Regionally, the IEA highlights a stark divergence between emerging markets and mature economies. Non-OECD countries are projected to contribute 860,000 bpd of demand growth in 2025, contrasted with a combined decline of 120,000 bpd across OECD members even as richer nations grapple with energy-efficiency gains and transport electrification (IEA).

• China & India: After a strong Q1 uptick, refined-product deliveries have shown signs of softening particularly in diesel and aviation fuels reflecting both weaker industrial output and intensifying EV competition in passenger transport.
  
• Africa & Latin America: These regions will continue to see steady, albeit smaller, increments in consumption, driven by population growth and urbanization.
  

U.S. Shale Under Pressure

On the supply side, a downturn in U.S. tight-oil activity is undercutting previously bullish forecasts. Amid sliding oil prices, North American independents have signaled capital-expenditure cuts of up to 9% for 2025 and reductions in rig counts. Consequently, the IEA has trimmed its U.S. shale production forecast by 40,000 bpd for 2025 and 190,000 bpd for 2026 marking the second consecutive monthly downgrade (IEA).

This slowdown in “light tight oil” growth contrasts with a strengthening outlook for conventional fields outside OPEC+, which are now expected to add 1.3 million bpd in 2025 and 820,000 bpd in 2026. Total non-OPEC+ supply growth for 2025 is pegged at 1.6 million bpd, up nearly 400,000 bpd from last month’s estimate, thanks largely to new capacity in Saudi Arabia and other Gulf states (Reuters).

OPEC+ Supply Dynamics

Despite concerns over demand, the OPEC+ alliance surprised markets in early May by announcing a second consecutive monthly output increase of 411,000 bpd for June effectively front-loading production gains originally slated for October 2025. Taking into account over-production by some members and compensatory cuts by others, the group is now set to add a net 310,000 bpd in 2025 and 150,000 bpd in 2026 (IEA).

Meanwhile, rival producers including Brazil, Canada and Norway are projected to boost supply by 800,000 bpd in 2025, down 100,000 bpd from OPEC’s April outlook, as upstream investments are reined in by weaker prices and cost-inflation pressures (Reuters).

Oil Prices and Market Response

Crude benchmarks have reflected this tug-of-war between rising supply and ebbing demand. Brent crude futures slid $14 per barrel in April to a four-year low near $60/bbl before rebounding to about $66/bbl in early May, supported by the tentative U.S.-UK trade deal on 8 May and hopes for broader tariff rollbacks (IEA).

Lower oil prices, while painful for producers, provide a short-term stimulus to consumption—particularly in price-sensitive emerging economies and sectors like petrochemicals. However, prolonged weakness risks delaying critical investments in both fossil-fuel and clean-energy infrastructure.

Refineries, Inventories and Market Balances

Refining activity remains robust in non-OECD regions, with throughput forecasts for 2025 unchanged at 83.2 million bpd, driven by ongoing capacity expansions in Asia and the Middle East. Global oil stocks are meanwhile building at an average of 720,000 bpd in 2025—reversing a draw of 140,000 bpd in 2024—suggesting a growing surplus that could pressure prices further if not absorbed by renewed demand or voluntary cuts (IEA).

Outlook for 2026 and Beyond

Looking ahead, the IEA anticipates that full-year 2026 demand growth will mirror 2025’s average, at around 760,000 bpd—underscoring the slowly shifting fundamentals that even record EV sales and efficiency measures cannot entirely offset near-term economic recovery dynamics (IEA).

Key uncertainties include:

• Economic trajectories in the United States, eurozone and China.
• Speed of EV penetration, especially in heavy-duty transport and emerging markets.
• Geopolitical events that could disrupt supply or prompt strategic stockpiling.
• OPEC+ policy shifts, which may react to prolonged price weakness or new cooperative agreements.

Human Impact and Industry Adaptation

Behind these barrel-per-day figures lie communities, jobs and investments. Refinery towns in the U.S. Gulf Coast, North Sea and Asia-Pacific are recalibrating workforce plans amid uncertain throughput. Tanker operators and storage terminal owners are eyeing buoyant freight rates—yet wary of policy changes in maritime emissions and fuel standards.

For oil majors, the message is clear: diversify portfolios and embrace energy transitions—be it through hydrogen ventures, carbon capture projects or renewables pipelines—while maintaining financial discipline in conventional operations.

Conclusion

The IEA’s May 2025 Oil Market Report delivers a sobering reminder that, even after a strong start, global oil demand is vulnerable to intertwined economic and technological forces. With demand-growth forecasts halved from early-2025 peaks and supply expansion outpacing consumption gains, markets may face a delicate balancing act in the months ahead.

Producers, investors and policymakers must therefore navigate a landscape where traditional growth drivers give way to electrification, efficiency and economic headwinds—steering the industry through what the IEA calls a “critical inflection point” for oil’s role in the global energy mix.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

16th May, 2025