Crude oil prices slid sharply on Tuesday, weighed down by a broad-based reassessment of global demand amid mounting economic headwinds. Investors and analysts cut their growth projections after fresh indicators pointed to slowing activity across major economies—from Europe’s manufacturing contraction to faltering consumer spending in China—casting a pall over the outlook for oil consumption in the coming quarters.

Brent crude futures dropped by nearly 1 percent to settle around $65.35 per barrel, while U.S. West Texas Intermediate (WTI) fell to approximately $61.55. Both benchmarks have declined more than 2 percent over the past two sessions, erasing gains from earlier in the month and marking the steepest back-to-back pullback since late February.

Market watchers attribute the sell-off to a wave of downward revisions from influential forecasters. Earlier this week, the International Energy Agency trimmed its 2025 global oil-demand growth estimate by 300,000 barrels per day, citing escalating borrowing costs, sluggish trade flows and policy tightening in emerging markets. Similarly, several major banks, including Barclays and Citigroup, have cut their price forecasts for Brent and WTI by $3–$5 a barrel, highlighting an emerging surplus in supply if demand fails to pick up.

“The oil market is simply reflecting a world economy that’s losing momentum,” said Daniel Liu, head of commodity research at a leading brokerage. “We’re seeing manufacturing PMIs fall to multi-year lows in Europe, retail sales flatlining in North America, and Chinese vehicle sales sliding for a third straight month. Until we get concrete signs of stabilization, prices will remain under pressure.”

Key economic releases this week have reinforced those concerns. In the eurozone, the latest purchasing managers’ index for April showed factory activity contracting at the sharpest rate in over a year, driven by weak orders and lingering uncertainties over energy costs. In the United States, retail sales unexpectedly dipped in March, suggesting that higher interest rates and stretched consumer balance sheets are eroding discretionary spending—an important driver of oil demand.

China, the world’s largest oil importer, also reported softer-than-anticipated industrial output growth, with state data revealing a slowdown in refining throughput and gasoline consumption. Although Beijing has rolled out fiscal measures to support infrastructure and local government spending, private-sector confidence remains subdued as export orders wane under softer global trade.

Emerging markets add another layer of complexity. In India, car registrations rose only modestly in April after a year of double-digit growth, while Brazil’s industrial sector slipped back into contraction. Turkey and South Africa, grappling with currency weakness and high borrowing costs, have seen fuel consumption stall, prompting analysts to trim their domestic-demand forecasts by up to 5 percent.

On the supply side, OPEC+ ministers are meeting later this month amid calls from some member states to maintain production discipline. Yet the group faces competing pressures: higher-cost producers in the Middle East push to defend market share, while lower-yield nations worry that prices below $70 per barrel threaten their fiscal budgets. Industry insiders say any delay in curbing output could further tip the market into surplus, compounding the demand-driven downturn.

Inventories in the United States are also on the rise. Private data show that crude stocks at Cushing, Oklahoma—the delivery point for WTI—climbed by over 1 million barrels last week. Meanwhile, refined-product stockpiles, including gasoline and distillates, expanded at refineries from Houston to Los Angeles, signaling that domestic consumption has softened even as refinery runs remain elevated.

The recent build in U.S. inventories comes after weeks of unseasonably warm weather, which typically lifts gasoline usage in the spring. “We would have expected a drawdown as drivers took to the roads,” noted Sarah Kim, a senior analyst at an energy consultancy. “Instead, we’re seeing stockpiles swell, suggesting that underlying demand is weaker than headline economic data imply.”

Oil companies have begun to feel the squeeze. Share prices of major integrated producers dipped 2–3 percent on Tuesday, underperforming broader equity indices as investors reassessed capital expenditure plans and production guidance. Upstream firms with high-cost barrels—the Canadian oil sands and U.S. shale drillers in particular—are bracing for a period of tighter margins, with some contemplating output cuts if prices stay below break-even levels.

In contrast, national oil companies in the Middle East and large-scale producers in Russia appear better positioned to weather the downturn, thanks to lower lifting costs and diversified revenue streams. Nonetheless, even they face fiscal pressures if prices languish near current levels for an extended period, prompting budget planners to consider belt-tightening measures in 2026.

Despite the gloom, a handful of traders remain upbeat about a potential rebound. They point to the possibility of renewed OPEC+ cuts, unforeseen supply disruptions from geopolitical flashpoints, or a rebound in Chinese stimulus measures—infrastructure spending or tax incentives—that could reignite fuel demand. But for now, those hopes are distant, and the consensus view is that the market must grapple with diminished demand expectations before any sustained rally can materialize.

Adding to the complexity is the accelerating energy transition. As governments push for cleaner transport and expand renewable power capacity, long-term demand growth for oil is facing structural headwinds. Major automakers are on track to increase electric-vehicle market share to over 20 percent in key regions by 2027, a trend that could shave hundreds of thousands of barrels per day off transportation fuel demand.

Refiners, too, are diversifying product slates to include more petrochemical feedstocks, seeking to offset flat or declining fuels margins. Several European complexes have announced upgrades to boost production of high-value chemicals, while Asian refineries are experimenting with hydrogen co-processing to lower carbon footprints—moves that could reshape crude-quality preferences and trading patterns over the next decade.

In the shipping sector, freight rates for oil tankers have fallen from last year’s peaks as ton-mile demand eased and charter rates softened. Lower shipping costs typically support crude movements, but in the current environment they are being driven by an abundance of available vessels rather than robust cargo volumes—another sign that global energy flows are weakening.

Looking beyond the short term, analysts caution that volatility will remain the norm. The interplay of rising interest rates, volatile currency markets, and shifting fiscal policies means that demand forecasts can swing rapidly. “This is a market in search of a storyline,” said Liu at the brokerage. “We need a clear catalyst—whether it’s an unexpected supply cut or a policy pivot—to give prices a definitive direction.”

For now, traders are bracing for choppy conditions. Options-implied volatility for crude futures has climbed to its highest level in six months, and open interest in both Brent and WTI contracts is at multi-month highs, reflecting increased hedging activity by both producers and consumers.

As the global economy enters the traditionally quiet summer trading season, oil markets will be closely watching macroeconomic indicators—manufacturing PMIs, consumer confidence surveys, and central-bank signals—for any sign of stabilization. Until then, the narrative remains dominated by slowing growth, rising inventories, and a growing mismatch between supply and the revised lower trajectory of demand.

(Adapted from Reuters.com)