Wall Street Banks Cut Oil Price Forecasts Amid Tariff, Geopolitical Uncertainty

The oil market is in a state of flux as Wall Street banks slash their price forecasts, citing a confluence of factors including escalating tariff wars and heightened geopolitical tensions. The recent imposition of tariffs on imports from Canada, Mexico, and China by President Donald J. Trump has introduced significant uncertainty into the global trade landscape, which in turn affects energy demand and supply chains. This, coupled with ongoing geopolitical risks such as the war in Ukraine and the conflict between Israel and Hamas, has created a volatile environment for oil prices.



The tariff policies have led to a shift in the outlook for U.S. trade policy, which continues to evolve rapidly. The current macroeconomic outlook assumes an increasing universal tariff that will reach 10% by the end of 2025 and an effective tariff rate of approximately 20% on U.S. imports from China. This escalation in tariffs is expected to reduce energy demand, as higher costs for imported goods and services can dampen economic activity and consumer spending. As a result, the global oil market is expected to experience a surplus, with the OPEC+ group’s production increase and expectations of weaker demand growth due to the U.S. tariff policies and potential economic slowdown capping oil price rises this year.

Geopolitical uncertainties, such as the war in Ukraine and the conflict between Israel and Hamas, further complicate the global oil market dynamics. These conflicts have led to increased geopolitical risks, which can disrupt supply chains and cause shortages of key resources such as oil and gas. For example, the war in Ukraine has disrupted trade flows and caused supply chain problems, affecting industrial production worldwide. The conflict between Israel and Hamas, along with Houthi missile attacks on ships in the Red Sea, has also increased volatility in the oil market.

The potential long-term effects on oil prices are influenced by these geopolitical uncertainties and tariff policies. The OPEC+ group’s production increase and expectations of weaker demand growth due to the U.S. tariff policies and potential economic slowdown will cap oil price rises this year. Brent Crude prices are set to average $72.94 a barrel this year, according to the Reuters poll of 49 analysts and economists in March. This is lower than the average of $74.63 per barrel expected by the experts in the February Reuters survey. WTI Crude, the U.S. benchmark, is set to average $69.16 per barrel in 2025, down from the $70.66 expected in February.

The decision of Wall Street banks to cut their oil price forecasts is driven by several key factors, including geopolitical risks, trade policy assumptions, and market supply and demand dynamics. These factors influence investor sentiment and market behavior by creating uncertainty, increasing risk aversion, and leading to a bearish outlook on the oil market.

In summary, the recent tariff policies and geopolitical uncertainties have introduced significant volatility into the global oil market, leading to potential long-term effects on oil prices. The escalation in tariffs and geopolitical risks are expected to reduce energy demand and disrupt supply chains, capping oil price rises and potentially leading to a surplus in the global oil market.