Oil prices began 2025 on a cautiously optimistic note as Brent crude rose to $75.29 a barrel and West Texas Intermediate
(WTI) climbed to $72.38 on the first trading day of the year.
The gains came after Chinese President Xi Jinping pledged more proactive policies to promote growth in his
New Year address,
signaling a potential boost in fuel demand. However, mixed manufacturing data from China tempered some of the optimism, highlighting concerns about the broader economic outlook and the potential impact of U.S. President-elect Donald Trump’s proposed tariffs
on trade.
China’s factory activity in December grew at a slower-than-expected pace, according to a Caixin/S&P Global survey. Despite
this, stronger performance in the services and construction sectors suggested that stimulus measures are starting to trickle through parts of the economy. Analysts speculate that weaker data could prompt Beijing to accelerate its policy support, which might
bolster oil demand in the near term. IG market analyst Tony Sycamore noted that the current tight trading range in WTI suggests a significant price move is on the horizon, though its
direction remains uncertain.
Meanwhile, U.S. oil markets are watching for updates on inventory levels. Crude oil and distillate stockpiles are expected
to have fallen last week, while gasoline inventories likely increased, according to a Reuters poll.
2024 recap: A year of stability amid challenges
Oil prices declined for a third consecutive year in
2024. Brent crude fell by 3%, ending the year at $74 per barrel, while WTI remained relatively flat. This stability was underpinned by the interplay of weak Chinese demand, rising non-OPEC supplies, and OPEC+’s ongoing production cuts, which failed to significantly
lift prices.
China’s
manufacturing
activity barely grew in December, reflecting ongoing economic struggles. The rapid adoption of electric vehicles (EVs) has also reduced China’s oil consumption, further dimming
its role as a driver of global demand. While Beijing’s stimulus measures are beginning to show results in some sectors, it remains unclear whether they can sustain broader economic recovery and drive significant oil demand growth in 2025.
China: The waning demand giant
In 2024, China’s faltering economy and a booming EV sector undermined oil consumption, marking a turning point for the world’s
largest importer of crude. While Beijing’s stimulus measures may provide short-term support, structural shifts in the energy landscape are hard to ignore.
The International Energy Agency (IEA) projects further demand reductions in
2025,
even as OPEC+ struggles to counterbalance the resulting market surplus. China’s transition away from oil-intensive growth models signals the diminishing role of traditional demand drivers.
India and emerging African markets: Shifting dynamics
As China’s influence wanes, other players are stepping up. India, in particular, has emerged as a key driver of demand growth,
with a 3.2% year-over-year increase projected in 2025 compared to 1.7% for China. India’s slower transition to clean energy and heavy reliance on coal ensure continued oil demand in the near term.
In Africa,
Senegal
and
Nigeria
are becoming increasingly significant players. Senegal’s launch of the Sangomar oil field in mid-2024 marked the country’s entry into the oil market, driving record economic growth
of 11.5% year-over-year in Q3 2024. The upcoming Greater Tortue Ahmeyim LNG project, expected to ship its first LNG cargo in early 2025, further underscores Senegal’s rising energy profile. Meanwhile, Nigeria restarted its 125,000 bpd Warri refinery and saw
the 650,000 bpd Dangote refinery come online in Lagos, positioning itself for a resurgence in the global oil market.
Iran: A geopolitical wildcard
Iran’s oil resurgence under the Biden administration added a new dimension to global supply dynamics. Production climbed
back to 3.2 million barrels per day (bpd), and China emerged as Tehran’s largest customer, indirectly importing Iranian oil via Malaysia.
However, the return of Donald Trump to the White House in 2025 could upend this fragile equilibrium. Trump has pledged to
reinstate strict sanctions on Iran,
potentially slashing exports and tightening global supply. While this would likely boost prices, enforcing such measures presents challenges, given the complex web of indirect trade routes and sanctions-evasion tactics employed by Iran and its trading partners.
Geopolitical risks and supply challenges
The geopolitical landscape continues to add complexity to oil markets. Russia’s halt of
gas
exports through Ukraine on New Year’s Day underscores ongoing energy security concerns in Europe, though alternative supply arrangements have mitigated immediate disruptions. In
the U.S., President-elect Trump’s proposed sanctions on Iran could tighten global oil supply, though enforcement may face challenges due to indirect trade routes and sanctions-evasion tactics.
OPEC+ remains a central player, yet its efforts to stabilize prices are increasingly challenged by rising production from
non-OPEC producers. U.S. output reached a record 13.46 million bpd in 2024 and is expected to climb further in 2025. Countries like Guyana and Brazil also continue to ramp up production, exerting downward pressure on prices despite OPEC+ supply cuts.
2025 outlook: Stability or volatility?
A Reuters poll projects that oil prices will
remain constrained near $70 per barrel in 2025, reflecting weak Chinese demand and rising global supplies. However, higher geopolitical risks and the prospect of increased U.S. tariffs under Trump could add volatility. Traders are also monitoring the U.S.
ISM manufacturing index and inventory data for signs of market direction.
Emerging markets like India and Africa are poised to play increasingly critical roles in shaping demand dynamics, while geopolitical
risks, from Middle East tensions to Russia’s energy strategy, remain significant wildcards. For now, the interplay between supply, demand, and geopolitical factors ensures a complex and multifaceted outlook for oil markets in 2025.
At the start of 2025, Oil is edging up at around $72.45 with upward bias evident on the daily chart. However RSI rising towards
overbought territory could hint at an impending slowdown. More upward pressure could be held at the $73 price mark, on the downside, sellers could be held at the moving average, with further downward movement likely to be held at the $70 mark.
Source: Deriv X (Trading view)
Disclaimer:
The information contained within this article is for educational purposes only and is not intended as financial or investment
advice. It is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.
The current performance figures quoted are only estimates and may not be a reliable indicator of future performance.
The past performance figures quoted refer to the past and are not a guarantee of future performance or a reliable guide to future performance.
No representation or warranty is given as to the accuracy or completeness of this information. Do your own research before
making any trading decisions.
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