• IEA expects 1.4 million bpd oversupply in 2025

• IEA trims 2024 oil demand growth forecast by 80,000 bpd

In 2024, the crude oil market faced a challenging environment marked by controlled OPEC+ supply, fluctuating demand, heightened geopolitical tensions, economic weaknesses, and a focus on the energy transition. Despite these complexities, WTI crude oil prices moved within a relatively narrow range of US$65 to US$87 per barrel, making 2024 one of the most stable years in recent history.

Looking ahead to 2025, the Federal Reserve implemented a 100-basis-point interest rate cut in 2024 but has scaled back its projected reductions for 2025 to just 50 basis points. This adjustment reflects a longer-than-anticipated timeline for achieving the central bank’s inflation target. Persistently elevated interest rates could exert downward pressure on economic growth, potentially dampening oil demand.

The 2024 U.S. elections may usher in energy policy changes under a new administration, adding another layer of potential market transformation. However, uncertainties persist, particularly regarding OPEC+ production strategies and the potential looming surplus.

Supply Surplus Amid Modest Demand Growth

Oil prices in 2025 are likely to remain under pressure, driven by concerns over weak global demand and an anticipated surplus. Despite further delays by OPEC+ in restoring 2.2 million barrels per day (bpd) of voluntary production cuts, the market is likely to be in surplus throughout next year.

The International Energy Agency (IEA) stated that, even without accounting for the return to higher production quotas, its current forecast indicates a supply surplus of 950,000 barrels per day (bpd) next year. This surplus could increase to 1.4 million bpd if OPEC+ proceeds with its planned easing of production cuts starting at the end of March.

Weakness in China Weighs on Demand Outlook

Global oil demand growth in 2024 has been underwhelming, largely due to slower-than-expected economic activity in China. A combination of cyclical factors, such as the sluggish property market and weak consumer spending, and structural trends, including the rise of electric vehicles and LNG-powered trucks, are limiting China’s oil consumption.

Despite this, the IEA raised its global oil demand growth forecast for 2025 to 1.2 million barrels per day (bpd), up from 990,000 bpd last month. This revision is largely attributed to the impact of China’s recent stimulus measures and other Asian countries, as noted in the IEA’s monthly oil market report.

Non-OPEC+ Supply Outpaces Demand

At the same time, the IEA projects that non-OPEC+ nations will increase supply by approximately 1.5 million bpd next year, led by the United States, Canada, Guyana, Brazil, and Argentina – outpacing the rate of demand growth and keeping the market well-supplied.

Several risks could alter this outlook. Stricter enforcement of sanctions on Iran or additional delays by OPEC+ in restoring production could tighten the market. Additionally, growing geopolitical instability in the Middle East poses a significant threat to the global energy market.

Key Factors Shaping the 2025 Oil Market

1. OPEC+ Strategy

OPEC+ remains a pivotal force in the global oil market, but internal challenges could undermine its ability to maintain discipline. Lower oil prices have strained the fiscal budgets of many OPEC members, increasing the risk of non-compliance with production targets. Saudi Arabia, for example, has expressed concerns about members exceeding quotas, warning that failure to adhere to cuts could trigger a price war reminiscent of 2020.

While OPEC+ has significant spare capacity – estimated at over 5 million bpd – geopolitical disruptions, particularly in the Middle East, could complicate the supply outlook. Tensions in the Strait of Hormuz, through which a significant share of global oil flows, remain a critical risk factor. Although the market has grown increasingly immune to Middle Eastern geopolitical events, any actual disruption to supply could push prices higher in the short-term.

2. The Trump Administration’s Impact on U.S. Oil Production

The return of Donald Trump to the White House in January 2025 is expected to bring a more pro-oil stance, with policies aimed at boosting U.S. energy production. Measures such as tax incentives, the lifting of restrictions on drilling permits, and the potential reopening of the Keystone XL pipeline could support higher output. However, we remain cautious about the scale and timing of such increases.

U.S. oil production is forecast to grow modestly in 2025, by around 300,000 bpd to a record 13.5 million bpd. This aligns with the economic realities faced by American producers, who remain focused on profitability rather than volume. With forward prices for West Texas Intermediate (WTI) crude hovering around US$65 per barrel – near the break-even point for many producers – a major production surge seems unlikely unless prices rise significantly.

Geopolitical Risks and the Role of Sanctions

Sanctions remain a wildcard in determining crude oil prices. With Donald Trump returning as U.S. president, potential sanctions on Iran, Venezuela, or Iraq could disrupt global supply. Under President Biden, sanctions enforcement against Iranian oil exports has been relatively lenient, allowing Iran to ramp up production to around 3.4 million bpd. However, a Trump administration is likely to take a more restrictive stance, potentially jeopardizing up to 1 million bpd of Iranian supply.

The potential sanctions on Iranian output could create room for OPEC+ to ramp up production. However, with most Iranian exports now directed to China, the impact of stricter sanctions may be muted. Conversely, improved relations with Saudi Arabia and Russia could stabilize the oil market.

Global Energy Transition

The ongoing global shift toward renewable energy is a key factor moderating oil demand growth. While the transition is unlikely to cause immediate disruptions, the adoption of cleaner energy technologies continues to influence long-term consumption trends. In China, policy measures favouring electric vehicles and renewable energy investments are expected to further dampen oil demand.

Source: TradingView

WTI 2025 Outlook

The crude oil market in 2025 is poised for a delicate balancing act, as rising non-OPEC supply, modest demand growth, and geopolitical uncertainties shape the outlook. Despite OPEC+ commitment to stabilizing the market, oil prices face headwinds from supply surplus.

WTI crude prices are likely to remain range bound in 2025 and fluctuate between $63 and $78 per barrel, as the market faces a year of pressure driven by oversupply and sluggish demand. Should key support of $63 get broken, a decline to $57 could follow. However, prices are likely to average $65 in 2025.

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