Oversupply pressures oil markets in 2025
Oil prices remain volatile in 2025. Demand faces challenges from trade tensions and China's reduced demand growth, while OPEC+'s production increase raises fears of oversupply. Consequently, prices are expected to decrease, reflecting the uncertain market conditions.
Demand growth concerns
The outlook for oil demand in 2025 is facing challenges due to a combination of geopolitical and economic factors. After a slowdown in 2024, demand growth is anticipated to improve slightly, yet the emergence of a trade war has cast significant doubt over these projections. Initially, demand growth was forecasted at 1.0 million barrels per day (mb/d) for 2025, but the trade war could reduce this figure to 0.7 mb/d.
A major factor contributing to this weakened demand is the reduced role of China in the global oil market. Once a major driver of demand growth, China's contribution to this growth has dropped significantly—from 70% to just 20%. This decline is largely driven by an economic slowdown and structural shifts within the country. For example, the rise in electrification of transport, with electric vehicles now accounting for 50% of sales, has reduced the reliance on oil. Furthermore, the expansion of the high-speed rail network, which competes with air travel, also contributes to the reduced demand for oil. Additionally, China dominates solar panel production, accounting for 95% of the world's production, and wind turbine production, comprising 60%, further emphasising its shift towards renewable energy sources. Furthermore, a potential US-Iran nuclear deal could increase Iranian exports and exert more downside pressure on oil prices in the second half of the year.
Fears of supply glut
Surprisingly, OPEC+ has decided to increase production. A decision that comes despite falling prices, expectations of weaker demand and a US-led trade war hurting oil prices. The move by OPEC+ has injected uncertainty into the market, raising concerns among investors that markets will be oversupplied with oil in the coming year. In the US, however, shale oil producers are finding it difficult to increase output at the current price levels. Despite the US administration supporting drilling, price is the main factor that influences production increases. Studies indicate that shale producers intend to slightly cut back on investments unless oil prices rise to USD 89 per barrel (USD/b), which restricts the potential for expansion.
Conclusion
The combination of increased production from OPEC+ countries and a weakened demand growth is driving a downward trend in oil prices. Consequently, the forecast for Brent crude price at the end of 2025 has been adjusted to USD 60/b, with expectations that it could dip as low as USD 58/b in early 2026. After that we expect the price to hover in the USD/b 60-70 range.
Jan Wirken
Senior Equity & Commodity Research & Advisory Expert