Oil Drifts Toward Year-End as Traders Ponder Outlook for 2025

Oil prices have been on a rollercoaster ride in 2024, with geopolitical tensions, supply disruptions, and demand concerns all playing a role. As the year draws to a close, traders are looking ahead to 2025, trying to gauge the outlook for the global oil market. Here's what they're focusing on:

1. Geopolitical Tensions and Supply Disruptions: The Middle East has been a hotspot for geopolitical tensions, with the ongoing conflict between Israel and Hamas raising fears of supply disruptions. In 2024, direct strikes between Israel and Iran temporarily reignited these fears, but both parties ultimately decided not to escalate the situation. However, traders are keeping a close eye on the region, as any escalation could lead to a surge in oil prices due to potential supply disruptions.
2. OPEC+ Production Cuts: OPEC+ countries have been grappling with the decision to unwind their additional voluntary production cuts. In 2024, the alliance delayed the restoration of these volumes to the market, extending the ramp-up period through September 2026. This decision was made against a backdrop of heightened geopolitical tensions and slowing global oil demand growth, particularly in China. While the delay has reduced the potential supply overhang, persistent overproduction from some OPEC+ members and robust supply growth from non-OPEC+ countries could still impact oil prices and demand in 2025.
3. China's Economic Policies and Stimulus Packages: China's economic policies and stimulus packages have had a significant impact on oil demand in recent years. In 2024, China's oil demand growth underwhelmed, disappointing traders who expected it to continue growing at double-digit percentage figures. Several stimulus packages announced by the Chinese government did not immediately lead to a surge in oil demand, which contributed to the oil price depression. However, the International Energy Agency (IEA) expects China's oil demand growth to accelerate from 840 kb/d in 2024 to 1.1 mb/d next year, lifting consumption to 103.9 mb/d in 2025. This increase will be dominated by petrochemical feedstocks, while demand for transport fuels will continue to be constrained by behavioral and technological progress.
4. Electric Vehicle Adoption: The increasing adoption of electric vehicles (EVs) in China and other emerging markets is expected to play a significant role in shaping oil demand growth in 2025. China is the world's largest market for electric vehicles, with sales reaching 6.7 million units in 2023, accounting for 56% of the global total. This rapid adoption is driven by government subsidies, improving battery technology, and increasing consumer awareness. As a result, China's oil demand growth has slowed down, with the IEA reporting that non-OECD demand growth, notably in China, has slowed markedly in 2024. This trend is expected to continue in 2025, further dampening oil demand growth in the region.
5. Iran's Nuclear Program: The potential expansion of Iran's nuclear program could have significant implications for global oil supply and prices. Iran is a major oil exporter, with crude oil production around 2.5 million barrels per day (mbpd) in 2024. If Iran's nuclear program leads to further sanctions or military conflict, it could disrupt Iran's oil exports, tightening global oil markets and leading to higher prices. The risk of further sanctions or military conflict could also introduce geopolitical uncertainty, driving oil prices higher.

As traders look ahead to 2025, they are grappling with these and other uncertainties, trying to gauge the outlook for the global oil market. The interplay between geopolitical tensions, supply disruptions, demand concerns, and technological shifts will continue to shape oil prices and demand in the coming year.