A Market Caught Between Trade Tensions and Supply Shifts: 2025 Oil Outlook

Energy markets are, once again, showing their resilience and capacity to adapt to shifting geopolitical and economic winds. The first weeks of 2025 brought a dramatic start: an $8/bbl rally in crude prices quickly gave way to a reversal, as the specter of new trade tariffs and sanctions cast a shadow over bullish sentiment. Below is an in-depth look at the data driving today’s market, the policy undercurrents reshaping supply flows, and what it all means for oil fundamentals in the year ahead.

Demand Growth: A Shifting Center of Gravity

Moderate Demand Outlook The International Energy Agency (IEA) has revised its global oil demand growth forecast for 2025 marginally higher, to around 1.1 million barrels per day (mb/d). This comes after weaker-than-expected data in late 2024, where colder weather failed to spark a significant uptick in consumption in OECD economies. Notably, U.S. November deliveries contracted by 510 kb/d year-on-year—an uncharacteristic dip for a market typically resilient during winter months.

Asia Takes the Lead China will remain the single largest contributor to global demand growth, though its share of the increase—roughly 19%—is markedly lower than the 60% average of the past decade. This deceleration stems largely from a maturing economy and slowing expansions outside the petrochemical sector. In tandem, India and other emerging Asian economies are stepping up, contributing a combined 500 kb/d. This highlights a broader rebalancing of consumption patterns: demand growth is dispersing beyond China’s traditional dominance, while the OECD’s structural decline in oil use has resumed.

Supply Side: Weather Woes and Voluntary Cuts

Global Supply in Flux In January, global oil supply slipped by 950 kb/d to 102.7 mb/d. Severe cold weather across North America curtailed output, exacerbating supply disruptions in Nigeria and Libya. Nevertheless, production is still nearly 2 mb/d higher than a year ago, thanks to robust performance in the Americas. Looking forward, the IEA forecasts global supply to rise by 1.6 mb/d in 2025, reaching 104.5 mb/d. Crucially, non-OPEC+ producers account for most of this growth, led by the United States, Brazil, and Canada.

OPEC+ Compliance Meanwhile, OPEC+ continues its policy of voluntary production cuts. Though these curbs have been partially eased, the alliance signaled it will unwind them gradually starting in April, underscoring a commitment to market stability. Improved compliance is slowly chipping away at the surplus that had been projected for 2025. Still, as non-OPEC+ producers ramp up output, the onus is on OPEC+ to calibrate its cuts carefully—balancing prices and market share remains a delicate act.

Inventories and Refining: Stocks Tighten, Margins Under Pressure

Crude Stock Draws December data showed a notable 63.5-million-barrel drop in global crude inventories, with products stocks rising by 46.4 million barrels. Preliminary figures suggest an additional 49.3 million barrels drawn in January, primarily in China. OECD industry inventories, at 2,737.2 million barrels, remain over 90 million barrels below their five-year average—evidence that refiners worked overtime to rebuild product stocks in 2024, while crude supplies tightened.

Refining Margins Refiners also felt the volatility in January. Global crude runs dropped by 1 mb/d to 82.9 mb/d as frigid conditions in the United States and maintenance schedules crimped throughput. Sour crude margins in Asia suffered a collapse after new U.S. sanctions on Russian barrels boosted Dubai crude prices, whereas refiners in the Atlantic Basin benefited from robust middle distillate cracks. With a projected 580 kb/d year-on-year gain in refinery throughput for 2025—driven mostly by non-OECD refiners—margin differentials could persist, especially as regional crude quality and sanction-related flows continue to fluctuate.

Policy and Geopolitics: Sanctions and Tariffs Redefine Trade Flows

New U.S. Sanctions on Russia and Iran Fresh sanctions imposed by the U.S. at the start of 2025 rattled traders. Yet, Iranian crude exports remain only marginally lower, and Russian flows, for now, continue largely uninterrupted. In the medium term, however, these measures could reshape supply routes if refiners in Asia or Europe balk at additional complexities tied to sanctioned barrels.

Prospect of a Trade War Markets rallied in early January, only to see those gains erased as talk of a U.S.-China trade dispute gained momentum. Higher tariffs threaten to dampen global GDP growth, thereby curbing oil demand. Already, Chinese oil and gas traders are seeking waivers on new tariffs for American crude and LNG. The worry is that a broader, more entrenched trade war could stunt global economic activity, limiting the scope of future oil demand growth.

A Return to Fundamentals?

One of the more interesting developments is the shift away from algorithmic-driven trading strategies, which dominated oil markets in 2024 but yielded lackluster returns. Traders are recalibrating their models to incorporate real-time supply-demand fundamentals. As supply tightens in certain regions and demand remains steady in others, these fundamentals-based signals have become more critical in identifying genuine price direction.

Price Dynamics In early January, North Sea Dated jumped $8/bbl to $83/bbl, spurred by fresh sanctions and cold weather. By month’s end, that rally lost steam, settling around $77/bbl amid trade tensions. ICE Brent, after touching the mid-$80s, is now hovering in the mid-$70s—reflecting market uncertainty over both geopolitical risks and the possibility of slower economic growth.

Outlook: Adaptability and Resilience

Time and again, oil markets have proven their ability to adapt to external shocks—from sanctions to unexpected weather events. The current environment—marked by new sanctions on Russia and Iran, ongoing OPEC+ supply management, and the specter of a U.S.-China trade war—illustrates just how quickly sentiment can shift. Yet if history is any guide, the industry will adjust flows, manage inventories, and reprice risk as necessary.

For 2025, the core narrative remains one of cautious optimism. Demand is set to grow—albeit at a moderate pace—while supply appears ample, especially from non-OPEC+ producers. Stocks are tightening, providing some support to prices, but any upside is capped by trade uncertainties and potential disruptions to economic growth. As policymakers weigh their next moves, fundamentals have reclaimed center stage, setting the tone for what could be another turbulent, but ultimately resilient, year in global oil markets.

Disclaimer: The information and opinions presented in this article/post/content are solely my own and are intended for general knowledge and discussion purposes only. They do not constitute professional advice, and no warranty is given for their accuracy or completeness.