Navigating Oil Market Volatility: Leveraging Near-Term Demand Strength Amid Uncertain Geopolitical and Supply Dynamics

The global oil market in 2025 is a theater of contradictions. On one hand, near-term demand fundamentals remain robust, driven by OECD economies and resilient jet fuel consumption. On the other, geopolitical tensions, divergent supply forecasts, and the specter of a global economic slowdown create a volatile backdrop. For investors, the challenge lies in balancing these forces to capitalize on near-term opportunities while hedging against long-term uncertainties.

Near-Term Demand: A Fragile Foundation

The first half of 2025 saw global oil demand grow at an average of 990,000 barrels per day (b/d), fueled by OECD markets in the Americas and Europe. However, this momentum has since faltered. The International Energy Agency (IEA) and U.S. Energy Information Administration (EIA) now project 2025 demand growth to settle at 700,000 b/d, a sharp decline from earlier estimates. This revision reflects weaker-than-expected consumption in China, India, and Brazil, compounded by record electric vehicle (EV) sales and shifting energy policies.

Yet, demand is not uniformly weak. Jet fuel demand, for instance, has surged to 2.1% growth in 2025—the strongest among product categories—driven by post-pandemic travel recovery. This divergence highlights a critical insight: while structural demand trends are softening, cyclical factors like tourism and industrial activity can still provide short-term tailwinds.

Supply Dynamics: OPEC+ and the Shale Buffer

OPEC+ remains a linchpin of global oil supply, with 5.7 million barrels per day (mb/d) of spare capacity. In August 2025, the group announced plans to unwind 2.2 mb/d of voluntary production cuts by September, signaling a return to market share competition. This move, combined with rising U.S. shale output (averaging 13.5 mb/d in early 2025), has created a supply surplus that threatens to depress prices.

The EIA forecasts global oil inventories to build by 930,000 b/d in 2026 as supply outpaces demand, pushing Brent crude toward an average of $51 per barrel. However, geopolitical risks—such as Middle East tensions and U.S.-Russia-Ukraine diplomatic shifts—introduce volatility. For example, a full closure of the Strait of Hormuz could trigger a $110–$130 price spike, though OPEC+ and U.S. shale buffers limit such extremes.

Geopolitical and Policy Risks: A Double-Edged Sword

Geopolitical tensions remain a wildcard. In June 2025, Israeli strikes on Iranian nuclear infrastructure briefly pushed Brent prices to $79.50 per barrel. While a ceasefire stabilized prices, the potential for renewed hostilities—coupled with U.S. sanctions on Iran and Russia—creates a high-risk environment. Similarly, U.S. President Donald Trump's proposed 25% tariff on Russian oil imports has already triggered a 10% monthly decline in WTI prices, as refiners adjust supply chains.

Trade policy shifts further complicate the outlook. The EU's ban on Russian refined products and proposed tariffs on Indian exports could disrupt global trade flows, while U.S.-China tariff negotiations add uncertainty to demand projections. These developments underscore the need for investors to monitor geopolitical and policy risks as closely as supply-demand fundamentals.

Strategic Positioning: Energy Equities and Futures

For investors, the key is to balance exposure to near-term demand strength with hedges against long-term oversupply. Energy equities, particularly those with strong refining margins, offer a compelling angle. Global crude runs hit an all-time high of 85.6 mb/d in August 2025, with refining margins reaching 15-month highs. This suggests that refiners—unlike upstream producers—may benefit from tighter product markets.

Commodity futures also present opportunities. A "straddle" strategy—simultaneously holding long positions in Brent crude and short positions in U.S. crude (WTI)—could profit from the spread between Brent and WTI, which has widened due to regional supply imbalances. Additionally, investors might consider short-term bullish bets on ICE gasoil, where inventory tightness supports near-term gains.

However, caution is warranted. The EIA's projection of a $50/barrel Brent price by 2026 implies a bearish long-term outlook. Diversifying into alternative energy assets—such as natural gas, LNG, or nuclear energy—could mitigate exposure to oil's structural decline.

Conclusion: Navigating the Crossroads

The oil market in 2025 is at a crossroads. Near-term demand strength in OECD markets and jet fuel consumption offers a temporary reprieve, but structural headwinds—EV adoption, economic slowdowns, and policy shifts—loom large. For investors, the path forward lies in strategic positioning: leveraging refining equities and short-term futures while hedging against oversupply risks through diversification and geopolitical vigilance.

As the year progresses, the market will hinge on three critical factors: the pace of OPEC+ production normalization, the trajectory of U.S. shale output, and the resolution of geopolitical tensions. Those who can navigate these crosscurrents with agility and foresight will be best positioned to capitalize on the volatility ahead.