Oil Heads for First Monthly Drop Since November as Economic Uncertainty Weighs

Oil prices have been on a rollercoaster ride in recent months, with geopolitical tensions, sanctions, and production cuts from OPEC+ countries significantly impacting global supply and demand dynamics. However, as economic uncertainty looms, oil prices are poised for their first monthly drop since November. This article explores the key factors driving this trend and the potential implications for investors.



Geopolitical Tensions and Sanctions

Geopolitical tensions and sanctions, particularly those on Russia and Iran, have significantly influenced global oil supply and demand dynamics in the past year. In early January 2025, the US government issued new sanctions targeting Russia's oil sector, which initially triggered an upswing in prices due to fears of potential supply disruptions. However, market sentiment quickly shifted to renewed concerns over the world economy amid emerging trade wars, leading to a fall in prices (IEA, 2025). Despite these sanctions, Iranian crude oil exports remained only marginally lower, while Russian flows continued largely unaffected, indicating that the sanctions' impact on global oil supply has been limited so far (IEA, 2025).

OPEC+ Production Cuts and Voluntary Adjustments

OPEC+ countries' production cuts and voluntary adjustments have significantly impacted global oil supply and prices. In 2024, OPEC+ members reduced production by an estimated 1.3 million barrels per day (b/d), while non-OPEC+ production increased by 1.8 million b/d, largely offsetting the increase in global oil consumption (U.S. Energy Information Administration, Short-Term Energy Outlook, January 2025). This balance between supply and demand has contributed to stable oil prices throughout the year.

The producer alliance confirmed on 3 February 2025 that it plans to start unwinding voluntary cuts from April, noting that "these additional voluntary production adjustments have ensured the stability of the oil market" (IEA Oil Market Report, February 2025). This decision is expected to increase global oil supply and potentially put downward pressure on prices, as the market anticipates an increase in production from OPEC+ countries.



Economic Uncertainty and Oil Demand Growth

Economic uncertainty, driven by factors such as trade wars and geopolitical tensions, is weighing on oil demand growth. While China remains the largest source of oil demand growth, its share of the global increase is slumping to 19% compared with 60% in the preceding decade, driven entirely by the petrochemical sector (IEA, 2025). India and other emerging Asian economies are taking up increasing shares of growth, contributing a combined 500 kb/d. However, the overall pace of oil demand growth is expected to slow, as economic uncertainty and energy efficiency improvements impact consumption.

Investment Implications

As oil prices head for their first monthly drop since November, investors should consider the potential implications for the energy sector. While economic uncertainty may weigh on oil demand growth in the short term, the long-term outlook for the energy sector remains positive, driven by factors such as increased production from non-OPEC+ countries, the unwinding of OPEC+ production cuts, and the growing demand for petrochemical products.

Investors should focus on energy companies with strong balance sheets, robust cash flow generation, and a commitment to returning cash to shareholders. These companies are well-positioned to weather short-term market volatility and capitalize on long-term growth opportunities in the energy sector.



In conclusion, oil prices are poised for their first monthly drop since November as economic uncertainty weighs on demand growth. However, the long-term outlook for the energy sector remains positive, driven by factors such as increased production from non-OPEC+ countries, the unwinding of OPEC+ production cuts, and the growing demand for petrochemical products. Investors should focus on energy companies with strong fundamentals and a commitment to returning cash to shareholders to capitalize on long-term growth opportunities in the energy sector.