Investing.com – Bank of America sharply reduced its 2025 oil demand growth forecast by half, warning that the twin shocks of sweeping U.S. tariffs and OPEC’s surprise supply hike could drive a deeper global surplus and further pressure oil prices and energy stocks.

In a note to clients, BofA now sees full-year 2025 oil demand growth at 450,000 barrels per day (b/d), down from a previous forecast of 900,000 b/d. The revision follows a steep $10 per barrel drop in Crude Oil WTI Futures to $61.99 last week—its largest two-day decline since the COVID-19 outbreak.

“The risks introduced by President Trump’s tariffs and OPEC’s acceleration amplified the surplus we already saw forming,” analysts led by Kalei Akamine wrote, estimating that combined OPEC and non-OPEC supply could grow by 1.9 million b/d next year. “On paper, that surplus is an eye-watering 1.25 million b/d.”

If the projected scenario materializes, BofA believes both oil prices and valuations of oil-levered equities could decline further. “We believe valuations will continue to fall, paced by the broader market, before fundamentals become relevant.”

U.S. shale producers are unlikely to offset the imbalance, BofA said, with limited ability to grow production by the 500,000 b/d needed.

At current prices, most producers remain free cash flow positive, but discretionary spending like buybacks will likely be scaled back. Should WTI fall to $50, dividend payouts would come under pressure.

“In that case, producers will begin cutting capital to preserve dividend capacity,” the note said. Initial steps may include halting completions and deferring output, with rig cuts only as a last resort.

Among U.S. exploration and production firms, BofA highlights differing levels of resilience. While many top-tier names are discounting $60 WTI with a 10% rate, the bank sees select mid-tier producers offering better value and downside protection.

Dividend breakevens range from $36 per barrel for some of the strongest names to around $50 for others.

Recalibrating supply and valuation will take time, BofA said. “Commodity selloffs are not orderly,” the bank warned, and markets may remain dislocated before supply discipline and fundamentals reassert themselves.