Oil markets brace for 2025 collapse as pressures mount on all sides
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The crude oil market is teetering on unstable ground, with pressures building from all directions. As 2025 looms, analysts and investors are bracing for turbulence, and the outlook is looking increasingly grim.
Oil prices took a hit last Friday, dropping more than two per cent as concerns over weaker Chinese demand and the potential slowing of U.S. Federal Reserve interest rate cuts weighed heavily on the market. For the week, Brent crude fell roughly four per cent, while West Texas Intermediate tumbled by about five per cent.
For nearly 20 years, China has been the powerhouse driving global oil demand growth. But that narrative is changing. Last month, China’s oil refiners processed 4.6 per cent less crude than they did a year ago. Meanwhile, factory output growth slowed, and the property sector continues to grapple with mounting challenges.
Things could get worse. U.S. President-elect Donald Trump has vowed to strip China of its most-favoured-nation trading status and slap tariffs exceeding 60 per cent on Chinese imports – a sharp escalation from his first term.
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“The headwinds out of China are persisting, and whatever stimulus they put forward could be damaged by a new round of tariffs by the Trump administration,” said John Kilduff, a partner at Again Capital, speaking to Reuters.
Goldman Sachs Research has already lowered its 2025 growth forecast for China in light of these developments. “However, we would likely make larger downgrades if the trade war were to escalate further,” noted Jan Hatzius, Goldman Sachs Research chief economist.
Adding to the uncertainty, stronger-than-expected U.S. retail sales in October suggest the American economy is gaining strength. While this is positive for U.S. growth, it has triggered fears that the Federal Reserve could slow its pace of interest rate cuts, putting additional pressure on oil markets.
Trump’s position on the Russia-Ukraine war and reports of a potential Hezbollah ceasefire in Lebanon have also contributed to easing geopolitical risk premiums on crude prices.
The International Energy Agency (IEA) paints a bleak picture, forecasting a global oil surplus of more than one million barrels per day in 2025. It reported that China’s oil consumption – a key driver of global markets for decades – has contracted for six consecutive months through September. Demand growth in China this year is expected to be just 10 per cent of 2023 levels.
IEA head of oil industry and markets Toril Bosoni attributes the slowdown to several factors, including the adoption of electric vehicles, high-speed rail, and the use of gas in trucking. “It’s not just the economy and the slowdown in the construction sector,” Bosoni told Bloomberg TV.
Crude prices have already fallen 11 per cent since early October, despite ongoing hostilities in the Middle East. The IEA expects the pressure on prices to intensify as production increases from the U.S., Brazil, Canada, and Guyana add 1.5 million barrels per day to the market.
OPEC+ is feeling the strain of slowing demand. The group has slashed its consumption forecasts for four consecutive months, now projecting 1.8 million barrels per day of growth. However, this optimistic figure remains significantly higher than the IEA’s estimate and those of most analysts.
Experts warn that a complete unwinding of OPEC+ production cuts could send prices into a tailspin. Tom Kloza, global head of energy analysis at OPIS, predicts crude prices could fall to US$30 or US$40 per barrel without co-ordinated action.
“Given that oil demand growth next year probably won’t be much more than one million barrels a day, a full unwinding of OPEC+ supply cuts in 2025 would undoubtedly see a very steep slide in crude prices, possibly toward US$40 a barrel,” Henning Gloystein, head of energy, climate, and resources at Eurasia Group, told CNBC.
Meanwhile, Trump’s “drill, baby, drill” energy policy is expected to significantly boost U.S. oil production. His appointment of Chris Wright, a vocal advocate for fossil fuels, as energy secretary signals a strong push for increased oil and gas output. Wright is expected to champion Trump’s plans to ramp up fossil fuel production while opposing international efforts to combat climate change.
OPEC+ is facing tough choices. Any move to unwind output cuts could exacerbate the looming surplus, potentially doubling it, according to market analysts.
“There is more fear about 2025′s oil prices than any year I can remember since the Arab Spring,” Kloza said. MST Marquee senior energy analyst Saul Kavonic echoed this concern, warning that unco-ordinated action by OPEC+ could trigger a “price war over market share,” driving prices to lows not seen since the COVID-19 pandemic.
With faltering Chinese demand, rising U.S. production, and a growing global surplus, the oil market faces a challenging year ahead. A bearish outlook is becoming increasingly difficult to dismiss.
Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.
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