(CNN) - The US-China trade war is proving to be a nightmare for the battered oil market.
Oil demand, a closely-watched sign of economic growth, has waned because of mounting trade tensions and slowing global growth, according to report released Friday by the International Energy Agency.
The energy watchdog dimmed its forecast for worldwide oil demand for the rest of 2019 as well as for next year, and warned that the outlook is "fragile."
"There is growing evidence of an economic slowdown," the IEA report said.
Commodities like oil can provide a glimpse into the health of the world's economy. During booms, there is strong demand for everything from crude to copper and iron ore.
However, in the first five months of the year, the IEA said oil demand grew at the weakest pace since 2008. Demand for crude outright declined in May, marking the second year-over-year decline in 2019, the IEA said.
Crude tumbles into a bear market
Demand fears have set off a wave of selling in the oil market since trade tensions between the United States and China erupted.
President Donald Trump announced on August 1 he plans to impose a 10% tariff on $300 billion of US imports from China. Those tariffs, which will for the first time directly hit a large number of consumer goods, are scheduled to take effect on September 1. Trump told reporters on Friday that trade talks slated for September may not happen.
Brent crude, the global benchmark, officially entered a bear market this week, meaning it has declined more than 20% from recent highs. US oil prices plunged deeper into a bear market that began in June.
"Oil prices are swept up in stock market and commodity losses due to rising concern about trade disputes, the health of the global economy and weak oil demand," the IEA report said.
Bank of America Merrill Lynch recently estimated that the latest round of tariffs on China could wipe out up to 500,000 barrels per day of oil demand.
The lower oil prices could provide relief for consumers and businesses, offsetting some of the concern caused by the trade war and recent turbulence in the stock market.
The national average price of regular gasoline fell to $2.67 a gallon on Friday, compared with $2.87 a year ago, according to AAA.
Weak oil demand in India, America
However, the collapse in prices may also be an ominous sign about the health of the economy.
"The situation is becoming even more uncertain," the IEA report said.
Last month, the IMF downgraded its global growth forecast for 2019 and 2020 due to "subdued" growth and slumping trade.
Investors have become increasingly concerned about the ability of China to withstand the onslaught of tariffs from the Trump administration. However, the IEA raised its estimated oil consumption figures in China in part because of higher refinery activity.
On the other hand, the IEA warned of "weakness" in both India and the United States. Preliminary estimates show that gasoline demand declined in June and July, the start of the summer driving season.
Oil demand in developed nations has now declined for three quarters in a row, the IEA said. That hasn't happened since 2014.
Here comes OPEC?
OPEC and allies led by Russia have attempted to boost oil prices by agreeing to hold back production. Saudi Arabia has taken the brunt of the production cuts, pumping even less oil than it has agreed to.
However, oil output continues to be robust in the United States thanks to the shale oil revolution.
The IEA predicted "very strong" non-OPEC production growth next year.
"Under our current assumptions, in 2020, the oil market will be well supplied," the report said.
Oil prices jumped on Thursday and Friday in hopes that OPEC will come to the rescue with further production cuts. A Saudi official told Bloomberg News that the kingdom won't stand for a continued slide in prices and has already talked to counterparts in OPEC about taking action.
FGE, an energy consulting firm, warned Friday of a "considerable" surplus in oil supplies if OPEC and its allies continue to produce at current levels through the end of 2020.
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