Why Tourism and Tariffs Depress Oil Prices

Asked where fewer tourists could reduce demand, you and I would probably say hotels.

It’s also oil.

Oil Demand and Supply

Summarizing the data in its April 2025 industry report, the IEA (International Energy Agency) concluded that oil demand and supply growth had diminished.

Tourism

Down by almost one-third, fewer Canadian tourists are crossing the border for a visit to the U.S. Similarly, we are welcoming a smaller number of people from Germany, the U.K., and Mexico. While the reasons could relate to recent U.S. “unfriendliness,” stricter border security, and domestic immigration enforcement, the results are less oil demand.

By land (red) and by air (blue), trips are down:

Tariffs

Similarly, the high tariff environment will slow oil demand and supply growth in key markets everywhere. Citing an OECD demand decline and also the U.S. and China as “most exposed,” the IEA projects diminished economic activity. Like all investors, the IEA says the current economic environment will take oil markets on “a bumpy ride” because of “considerable uncertainties.”

Indeed, reflecting the impact of tariffs, slowing trade, and plunging affection for the United States, global oil demand is already down by 150,000 barrels a day. Responding, U.S. frackers have begun to constrain production. While a lower Brent price could bring them below break even, pricier drilling equipment (because of steel tariffs) pulls break even higher. Predictably, the IEA expects a fracking cut in production.

Our Bottom Line: Oil Prices

Finally, moving from today’s uncertainties, we can conclude with a hazy future.

Reuters tells us that the largest producers need Brent crude at $78. Otherwise, they won’t make crucial investments in offshore fields:

You can see that Brent’s price is below that $78 tipping point:

Concluding, as economists, our bottom line can always be the information and incentives that prices provide.

My sources and more: Thanks to Barrons for alerting me to the connection between tourism and oil prices. From there, this Oxford Economics Report and the IEA April 2025 Oil Market Report here and here, took us to tariffs and oil markets. Then, completing the picture, Reuters looked at how producers respond to price dips.