Macro & Oil Report: The keys to a better understanding of the oil market in 2025

The Keys to a Better Understanding of the Oil Market in 2025

As we step into 2025, understanding the factors influencing oil prices is crucial for investors, policymakers, and consumers alike. In this article, we break down the key elements driving the oil market and what to watch out for in the coming months.

Current Oil Prices and Market Trends

As of early 2025, Brent crude oil is trading around $75 per barrel. Its volatility has recently decreased compared to the past five years, which saw extreme price swings. During the COVID-19 crisis, prices plummeted to $35 per barrel, while the outbreak of war in Ukraine in early 2022 pushed them close to $140 per barrel. Since 2023, price fluctuations have narrowed, with crude trading between $68 and $97 per barrel. In recent months, prices have remained within the $74 to $82 per barrel range.

This does not necessarily mean that volatility cannot increase again, and it is important to understand what can cause prices to vary.

Key Factors Affecting Oil Prices

Oil prices are primarily influenced by three main factors: supply dynamics, demand trends, and geopolitical factors. Climate events, such as hurricanes in the Gulf of Mexico or severe cold snaps that increase energy consumption, can also impact prices in the short term. But they remain fairly unpredictable beyond a few days.

Global Oil Supply: The Major Players

The world’s top oil producers are the United States, Saudi Arabia, and Russia. The United States produces approximately 13.5 million barrels per day, largely due to the hydraulic fracturing revolution that has enabled the extraction of unconventional oil. Saudi Arabia holds the largest low-cost oil reserves and has the capability to quickly increase production by more than 3 million barrels per day. Russia, another key player, produces around 9 million barrels per day, making it a significant part of the global oil supply chain.

OPEC VS OPEC+: Understanding the Difference

OPEC, the Organization of the Petroleum Exporting Countries, includes major Middle Eastern and African oil producers, with Saudi Arabia playing a dominant role. OPEC+ extends OPEC by adding nine more countries, including Russia, which alone accounts for 75% of the additional production. While OPEC seeks to regulate prices by controlling production, political instability in some member nations and Russia’s unpredictable stance complicate these efforts.

OPEC+ Production Decisions in 2025

OPEC+ has reduced production by about 4 million barrels per day in recent years to maintain price stability. The current plan is to increase production by 2.2 million barrels per day over eighteen months starting in April 2025, but declining prices have sparked rumors of yet another postponement. This decision will be one of the most critical short-term factors impacting the oil market in the short-term.

The Role of the U.S. and Political Influences

US President Donald Trump has pledged to maximize US oil production while pressuring OPEC to do the same. However, several contradictions exist. US oil companies prioritize profitability over ramping up production. The shale oil sector remains cautious after past financial crises, making a sharp increase in production unlikely. Additionally, the US aims to replenish strategic oil reserves, which could push prices higher. The fact that Saudi Arabia is hosting the first discussions between US and Russian representatives about Ukraine further highlights the interconnected nature of oil and geopolitics.

Oil Demand: The Economic Drivers

Oil demand is closely linked to global economic growth, primarily driven by China’s economy and US Federal Reserve policies. In 2024, China’s 5% GDP growth contributed to 1/3 of global economic expansion, twice as much as India or the United States. The US Federal Reserve’s interest rate decisions also play a crucial role. Lower rates encourage growth and boost oil demand, while higher rates tend to suppress it. Structural shifts, such as the rise of electric vehicles and renewable energy sources, continue to influence long-term oil demand trends.

Geopolitical Factors and Their Impact on Oil

Geopolitics remains a major source of uncertainty in the oil market. In the Middle East, any conflict risks disrupting oil production and distribution, for example through the blockade  of the Strait of Hormuz. A potential tightening of US sanctions against Iran could drastically reduce Iranian oil exports, affecting global supply. Regarding the war in Ukraine, sanctions on Russian oil have influenced supply, though Russia has found alternative buyers, mitigating severe disruptions. Meanwhile, tariffs on US imports of Canadian oil or Chinese imports of US oil, or tariffs on US imports of steel and aluminium could raise production costs, though global trade tensions are more likely to pull down oil prices by slowing economic growth.

Key Takeaways for 2025

To better understand and anticipate changes in the oil market, it is important to closely monitor OPEC+ production decisions and output levels, China’s economic growth and oil consumption trends, US Federal Reserve interest rate policies, and geopolitical developments, in particular anything that might concern Iran now, while oil prices have shown more stability recently, the market remains highly sensitive to supply shifts, economic policies, and geopolitical events. Staying informed about these factors will be essential for navigating the oil market in 2025. For the latest updates on oil prices, market analysis, and geopolitical developments, follow our expert insights and stay ahead of the curve!