Energy Markets Confront Era Of Weakening Oil Consumption

Forbes

23-05-2025

For most of the past century, energy producers could count on steady oil demand growth. From industrial development in China to population booms in emerging markets, the global appetite for oil kept expanding like clockwork.
There were occasional exceptions, like the 2008-2009 recession and the demand slump from COVID-19, but global oil demand has increased at an average rate of about 1.2 million barrels per day (bpd) for nearly 60 years.
Global Oil Consumption 1965-2023.
Robert Rapier
But a recent forecast from the U.S. Energy Information Administration (EIA) suggests that the world may be entering a new phase—one where oil demand grows at a significantly slower pace.
This predicted change isn't the result of a single trend. Instead, it reflects a confluence of global forces—some structural, some temporary—that are reshaping how and where oil is used. For energy producers, investors, and policymakers, understanding what's behind this slowdown is critical to navigating the years ahead.
According to the EIA's most recent outlook, global oil consumption will rise by less than one million barrels per day in both 2025 and 2026. While any increase may sound like good news to the oil industry, that figure marks a significant drop from the historical average.
It's not that oil is going away anytime soon. But the days of strong, year-over-year demand growth—once seen as inevitable—may soon give way to something more measured, and in some cases, more uncertain.
At the heart of this slowdown is the global economy itself. The International Monetary Fund (IMF) now expects global GDP to grow just 2.8% in both 2025 and 2026. That's far from recession territory, but it's a reminder that we're operating in a world with tighter credit, more protectionism, and less global growth than in previous decades.
Much of the drag is coming from Asia, a region that has long been the engine of oil demand growth. In January, the EIA projected that Asia would contribute an additional 700,000 barrels per day to global demand in 2025. By May, that figure had been cut to 500,000 barrels per day. That may not sound like much, but in a market where supply and demand are often separated by razor-thin margins, the impact on oil prices could be significant.
The weaker outlook in Asia is a story of shifting priorities and lingering problems. In China, the property sector—a major source of industrial demand—is still mired in debt and overcapacity issues. With construction activity down, demand for diesel, fuel oil, and other fuels has taken a hit.
In India, oil consumption is still growing, but the pace is slowing. Government incentives for solar and wind power are beginning to chip away at growth rates that once looked unstoppable. India's pivot toward a more diversified energy mix is strategic, and it means that oil may no longer be a primary option for new energy demand.
Finally, supply chains are shifting. The COVID-19 pandemic led many companies to diversify manufacturing and logistics operations, which has reduced the sheer volume of goods crossing the Pacific Ocean. Less shipping translates into less bunker fuel demand, which is another factor tempering growth.
Geopolitics isn't helping either. The U.S. imposed a new round of tariffs in April 2025, sparking retaliatory measures and injecting fresh uncertainty into global trade. Early shipping data shows a measurable drop in container ship departures from major Asian ports—a likely reflection of cooling trade volumes.
That drop-off ripples across the energy markets. Fewer ships mean fewer trucks picking up cargo, fewer planes moving goods, and less industrial activity overall. It's a stark reminder of how quickly policy decisions can impact oil demand—even before those impacts show up in earnings reports or refinery throughput numbers.
For U.S. shale producers, slowing demand growth presents a familiar challenge: how to balance production with price. If supply keeps rising while demand growth cools, something has to give—and that something is usually price. Unless producers respond with discipline, we could see another cycle of oversupply and depressed oil prices.
OPEC+ faces a similar dilemma. The cartel's ability to manage prices depends on its ability to anticipate demand—and respond in kind. With demand growth weaker than expected, production cuts may be back on the table.
Refiners, particularly those with significant exposure to Asian markets, may also face narrower margins. If crude intake remains high but demand for refined products flattens, profitability will suffer.
For investors, the story isn't all negative. Slower oil demand growth is a headwind, but it's not a disaster. Energy companies that have diversified into natural gas, petrochemicals, or renewable energy may be better positioned to weather the shift.
It's also a good time to revisit how you assess oil companies. Earnings, cash flow, and debt management are always important—but so is strategic outlook. Companies that acknowledge the shifting landscape and adjust their capital allocation accordingly are likely to outperform those that stick to the 'drill, baby, drill' mindset.
Despite the slowdown, oil isn't going away. Sectors like aviation, shipping, and petrochemicals still rely heavily on oil-based products, and that's unlikely to change in the near term. But the era of near-automatic demand growth may be coming to an end.
What replaces it is a more balanced, nuanced market—one where efficiency, innovation, and adaptability carry more weight than sheer volume. For an industry long built on the assumption of constant growth, that's a profound shift. But it may also signal a transition to a more sustainable, diversified, and more resilient global energy system.