Oil Prices May Fall Further on China Slowdown, IEA Chief Says

The International Energy Agency (IEA) has issued a stark warning for global oil markets, projecting sustained downward pressure on prices due to China’s economic slowdown and escalating trade tensions. In its April 2025 Oil Market Report, the IEA revised global oil demand growth for 2025 down by 300,000 barrels per day (kb/d) to 730 kb/d, with further declines expected to 690 kb/d in 2026. This analysis, coupled with overproduction from OPEC+ members and robust non-OPEC supply growth, paints a bleak outlook for oil prices, which have already fallen to multi-year lows.

Demand Dynamics: China’s Structural Shift

China’s oil demand, once a key driver of global consumption, has stagnated. The IEA notes that Chinese oil demand fell 1.7% year-on-year in July 2024, with annual growth expected to slow to just 1.1% in 2024—a dramatic contrast to 9.6% growth in 2023. This deceleration is structural, driven by:
1. Electric Vehicle (EV) Adoption: EVs now account for over 50% of new car sales in China, displacing an estimated 400 kb/d of oil demand annually.
2. Real Estate Slump: Reduced construction activity has curbed diesel demand, a key component of China’s oil consumption mix.
3. Policy Shifts: Beijing’s focus on carbon neutrality by 2060 and clean energy transitions is accelerating the decline in oil-intensive sectors.

The IEA warns that these trends signal a long-term slowdown in global oil demand growth, with China’s contribution to global oil demand growth now below 20%—a sharp decline from its 60%+ share between 2013–2023.

Supply-Side Pressures: OPEC+ Overproduction and Non-OPEC Growth

The supply side is exacerbating the price slump. Despite OPEC+’s planned 411 kb/d output increase for May 2025, actual compliance is questionable. Key members like Kazakhstan, Iraq, and the UAE are already overproducing, with Kazakhstan exceeding its quota by 390 kb/d due to new projects like the Tengiz oilfield.

Meanwhile, non-OPEC+ supply growth is booming, led by Brazil, Guyana, and Canada. The IEA projects non-OPEC+ supply will rise by 920 kb/d in 2026, outpacing demand growth even as EV adoption and weaker refining activity curb consumption. This has created a global surplus of 600 kb/d in 2025, with risks of widening to 1.0 mb/d if OPEC+ fails to curb overproduction.

Price Outlook: Testing $60/bbl and Beyond

The IEA’s analysis suggests prices could test $60/bbl again if macroeconomic risks materialize, such as full implementation of U.S. tariffs or a sharper-than-expected Chinese slowdown. The agency’s April report noted that Brent crude had already fallen below $60/bbl—the lowest level in four years—before recovering slightly to $65/bbl on delayed tariff deadlines.

Longer-term, the IEA projects average Brent prices at $74/bbl in 2025, dropping to $66/bbl in 2026 as structural imbalances persist. The U.S. Energy Information Administration (EIA) concurs, forecasting sub-$70/bbl averages by late 2025.

Key Risks and Uncertainties

1. Trade Negotiations: Ongoing U.S.-China tariff disputes remain a wildcard. A full implementation of tariffs could deepen the demand slump and send prices lower.
2. OPEC+ Compliance: Chronic overproduction by members risks undermining supply discipline, even with nominal output increases.
3. Geopolitical Risks: U.S. sanctions on Iran and Russia continue to disrupt flows, but buyers like China and India are absorbing discounted crude, limiting their impact on prices.

Conclusion: Navigating the Bearish Landscape

The IEA’s analysis underscores a precarious outlook for oil prices, driven by China’s structural slowdown, trade conflicts, and oversupply risks. Key data points reinforce this bearish case:
- Demand: China’s oil demand growth has collapsed to 1.1% in 2024, with EVs displacing 400 kb/d of annual demand.
- Supply: A 600 kb/d surplus in 2025 is projected to expand to 1.0 mb/d by 2026, as non-OPEC+ growth outpaces consumption.
- Prices: Brent crude could revisit $60/bbl lows if macro risks escalate, with long-term averages below $70/bbl by 2026.

Investors in energy sectors should brace for prolonged volatility. Strategic hedging—such as put options on oil futures or short positions in oil majors—could mitigate downside risks. Meanwhile, long-term capital should explore clean energy plays, including EV manufacturers and renewable infrastructure firms, as structural demand shifts favor low-carbon alternatives.

The era of easy oil demand growth is over. As the IEA warns, the market is now at the mercy of trade wars, OPEC+ discipline failures, and China’s energy transition—a cocktail of risks that will keep oil prices under pressure for years to come.