Global oil prices are down sharply – but the impact on demand varies
Oil prices are one of few tailwinds at the moment for global oil consumption in the face of a challenging macroeconomic backdrop and the increasing uptake of electric vehicles. Crude oil is currently trading near multi-year lows – about $15 per barrel below this year's high.
On the face of it, one might expect prices at these levels to spur demand in developing countries, where oil‑intensive sectors such as mining, agriculture and heavy industry can drive a significant share of output. Moreover, since energy is a basic necessity, it frequently accounts for a comparatively high share of household expenditures in less affluent nations. It would follow, then, that consumption would be particularly sensitive to oil price changes.
Yet oil demand in developing nations has been less sensitive to recent price movements than consumption in advanced economies, our analysis shows.
Using data from GlobalPetrolPrices, which tracks what drivers around the world pay at the pump, we calculated by country the correlation between retail prices in local currency and wholesale prices on global gasoline markets. These generally follow crude oil prices closely, typically trading at a differential termed the “crack spread” that reflects an oil refinery's profit margin from converting crude oil into gasoline.
This analysis showed that from January 2022 to May 2025, the average demand‑weighted correlation between global gasoline prices and prices at the pump was 77% among member countries of the Organisation for Economic Cooperation and Development (OECD). This was about twice as strong as in other economies, where it was 39%. The equivalent correlations for diesel were similar: 77% and 38%, respectively.
Understanding the looser relationship between retail prices and demand in emerging economies
This weak linkage between wholesale and retail prices stems from the prevalence of government price controls and state subsidies for oil in many emerging and developing economies. This is particularly apparent in major oil and gas producers in the Middle East. In Saudi Arabia, Kuwait and Qatar, gasoline prices at the pump have remained essentially unchanged for years. In large swathes of Asia, including India and Malaysia, these prices have also barely moved – or only faintly reflected developments in oil and currency markets, as is the case in China.
State intervention in oil market dynamics is no less common in advanced economies. However, these governments typically deploy fuel taxes rather than subsidies or price freezes (although this distinction is not absolute: for example, Japan's extensive scheme of fuel subsidies renders it an outlier). As a result of these taxes, retail prices for gasoline and diesel tend to be much higher. Crucially, however, the taxes do not block the link with international oil markets – though the type of tax used determines the extent. Excise duties, which are quantity based, result in less of a link than value-added taxes, which are calculated based on price. Countries with low excise taxes, like the United States, therefore retain a clear transmission of market signals and a strong demand correlation to prices.
The impact of oil price and currency movements on short-term forecasts for oil demand
This structural disparity is an important factor in the different trajectory we see for oil demand in advanced economies compared with trends in developing countries this year. The IEA currently forecasts that global oil consumption in 2025 will rise by less than 700 000 barrels per day compared with 2024 – about 350 000 barrels per day less than our estimate at the start of the year. This downgrade since the beginning of 2025 is almost entirely attributable to lower-than-expected demand in emerging and developing economies.
Conversely, demand in advanced economies has proved resilient in the face of macroeconomic headwinds, supported by a relatively cold winter that boosted oil use for heating. Importantly, falling pump prices have also acted as a key support.
The impact of the drop in retail prices in some developed markets has been magnified by currency movements – most notably in Europe. Global oil prices and the US dollar have historically tended to move in opposite directions, with a weaker dollar typically coinciding with firmer oil prices. However, this trend has broken down in 2025, with a softer dollar accompanied by lower oil prices. (The US Dollar Index and benchmark Brent crude prices are each down about 10% year to date.) Since global oil markets are priced in dollars, a weaker dollar reduces the cost of oil in local currencies for importing countries, incentivising demand.
The greenback's decline has been most pronounced against the euro, which has risen 13% against the dollar. The MSCI Emerging Market Currency Index has only appreciated by 6%, with investor sentiment towards developing economies weighed down by turmoil over tariffs.
Partially as a result of this euro strength, we see oil demand in Europe growing by 20 000 barrels per day in 2025. That's a notable change from the contraction of 80 000 barrels per day that we had forecast at the start of this year. This upward revision stands in marked contrast to downgrades in the consumption forecasts for most regions of the world in 2025.
Source: IEA