DBRS: Lowering Oil Price Forecasts on Double Whammy of Tariffs and OPEC+ Production

• The double whammy of a tariff-induced global economic slowdown and gradually increasing OPEC+ supply will continue to pressure oil prices in the near term.
• We are reducing our 2025 WTI oil price forecast to $60/bbl from $65/bbl to reflect a diminished full-year global crude oil supply/demand balance.

After hitting an interim high of $81/bbl on January 15, 2025, the spot West Texas Intermediate crude oil price sharply reversed course to about $64/bbl, resting near a four-year low. Market angst about weakening crude oil demand was prompted by the recent imposition of larger-than-expected US tariffs. In addition, actual and planned retaliations by other countries are stifling global economic growth. The two main adversaries in the escalating trade war, the United States and China, are the #1 and #2 consumers for crude oil in the world. Of approximately 104 mb/d world crude oil demand in 2024, the US accounted for about 20% of the total and China 16%. Therefore, the impending global economic slowdown will potentially have a significant negative effect on crude oil demand.

Additionally, starting April 1, eight OPEC+ countries agreed to gradually phase out voluntary oil production cuts. These gradual increases may be paused or reversed, subject to evolving market conditions. The double whammy of a tariff-induced global economic downturn and gradually increasing OPEC+ supply will continue to pressure the oil prices in the near term. Further downside to pricing will depend on the magnitude and duration of a global economic slowdown, which now appears underway, and how quickly non-OPEC+ oil producers cut output in response to lower prices. Thus far, tariff-related economic worries have more than offset price support from US sanctions against the Iranian and Russian energy sectors.

The ongoing Russia-Ukraine war and Middle East conflict—including continued attacks against Israel and on commercial ships in the Red Sea—could meaningfully disrupt oil supplies, potentially causing prices to surge. Oil tankers originating from the Persian Gulf continue to be routed away from the Red Sea. The threat of a resurgence and broadening of the Israel-Hezbollah conflict remain, which could also disrupt supply. We will continue to monitor these developments and incorporate any significant changes in our price forecasts.

Approaching summer, we anticipate continued strong liquefied natural gas export demand and strong domestic demand for North American natural gas. However, economic uncertainties related to tariffs and global trade tensions will partially offset structural gas demand growth drivers, potentially holding back prices.

What Will Drive Oil Prices?

After hitting an interim high of $81/bbl on Jan. 15—just before US President Donald Trump took office on Jan. 20—the spot WTI oil price sharply reversed course to about $64/bbl currently, resting near a four-year low. Market angst about weakening crude oil demand was prompted by the recent imposition of larger-than-expected US tariffs and retaliations from other countries, which are stifling global economic growth.

To help mitigate the impact from an escalating global trade war, the European Central Bank and several countries—including India, Switzerland, and the Philippines—have recently cut interest rates to support their economies. Other countries may follow suit. Despite central bank rate cuts and the possibility that tariffs may eventually be walked back, economic damage caused by the disruption to efficient global trade flows and on broadscale corporate and consumer spending has already been done.

Market reports indicate that US tariffs on Chinese goods are currently up to 145%. However, thus far, the US has exempted all countries from tariffs on energy products. In retaliation, China has levied tariffs on US goods at 125% and US crude oil at 135%. Chinese tariffs on US energy imports will likely have a minimal impact on US energy producers because US imports represent less than 2% of total Chinese oil consumption. China has indicated openness to trade negotiations with the US, but with preconditions the US may not find acceptable.

On Jan. 1, 2024, eight OPEC+ countries implemented additional voluntary production cuts, totaling about 2.2 mb/d, aimed at supporting the oil price. This included the extension of Saudi Arabia’s unilateral production cut of 1 mb/d, first implemented in June 2023. Starting April 1, 2025, the eight OPEC+ countries agreed to gradually phase out the voluntary oil production cuts. The gradual increases by OPEC+ may be paused or reversed subject to evolving market conditions.

The additional supply of crude oil from OPEC+ will potentially exacerbate a surplus being created by a tariff-induced slackening of global demand. Elevated spare OPEC+ production capacity—approximately 5% of global liquids supply—could take some time to normalize and would maintain pressure on crude oil prices. Given the sharp WTI price decline to a range of $59/bbl-$63/bbl, many nonOPEC+ producers, such as US shale oil producers, are considering deferring development, which could eventually offset OPEC+ production increases. In a recent survey across US regions, the Federal Reserve Bank of Dallas estimates the average profitable breakeven price for drilling new wells to be $61/bbl-$70/bbl.

How Far Might Oil Prices Fall?

Based on these factors, we anticipate continued near-term pressure on oil prices. Further downside to pricing will depend on the magnitude and duration of the global economic slowdown which now appears to be underway, and how quickly non-OPEC+ oil producers cut output in response to lower prices.

A confluence of global events has kept the crude oil futures price curve in backwardation for the past several months—a condition wherein a commodity’s market price today (or spot price) is higher than the price for further-out contracts. As of this writing, the spot price for WTI crude is approximately $64/bbl and the contract price for April 2026 is about $61/bbl. Typically, the oil market trades in contango, which is the opposite of backwardation. In contango, a commodity’s spot price is below the price for further-out contracts.

Prior to President Trump taking office, most crude oil producers were incentivized by a steeply declining futures price curve to sell production into the marketplace immediately, rather than put crude oil into storage and sell later at lower price levels. Previously noted factors aligned to deflate bullish sentiment in the marketplace, and they have caused the WTI crude oil price curve to shift sharply lower and flatten since earlier this year.

Midcycle Oil Price Expectations Remain Unchanged

Our midcycle or normalized long-term price band of $50/bbl-$70/bbl for WTI oil remains unchanged. The band reflects our best judgment of the marginal cost of adding new oil supplies from sources like US shale resource plays, as well as a global market that is reasonably balanced (based on modest production containment efforts by OPEC+ and growth in global demand). Our forecasts for 2025, 2026, and 2027 fall within this band.