Oil Prices Expected to Remain Volatile Amid Geopolitical Risks

Oil prices are expected to remain volatile due to geopolitical risks and Opec+ production increases. The current rally may offer temporary relief to Malaysia's oil and gas industry, but analysts warn of structural headwinds. Brent crude prices are expected to retreat in 4Q25, potentially falling below $60 per barrel. Investors are recommended to stay defensive and focus on upstream maintenance providers.

Oil prices have been experiencing significant volatility in recent months, driven primarily by geopolitical risks and production adjustments by OPEC+. After reaching a high of $81/bbl in January 2025, the spot price of West Texas Intermediate (WTI) crude oil fell sharply in April to below $60/bbl, the lowest level in four years [1]. The decline was attributed to concerns about weak crude oil demand and the imposition of trade tariffs by the US, the world's largest crude oil consumer.

The US and China, the two largest crude oil consumers globally, accounted for about 20% and 16% of the estimated 104 million b/d of global demand in 2024, respectively. Any economic deceleration in these economies could significantly dampen global oil demand. However, the market saw a significant rise after the breakthrough in US-China trade negotiations on May 11, 2025. The agreement to temporarily reduce tariffs improved market sentiment, leading to an increase in oil prices [1].

On the supply side, OPEC+ members have accelerated planned production increases. In May, eight member countries announced a collective output hike of 411,000 b/d for June, the second consecutive month of ramped-up production. This strategy of increasing volumes at the expense of prices has introduced a bearish undertone to the market [1]. The evolving pace of unwinding production cuts and inconsistent compliance across member nations further contribute to supply-side uncertainty.

Meanwhile, the US has introduced new sanctions targeting Iranian and Venezuelan oil. The Trump administration has warned that entities purchasing Iranian oil or petrochemical products could face secondary sanctions, a policy similar to measures previously applied to Venezuelan crude. The fourth round of US-Iran nuclear negotiations concluded in early May, raising the possibility of a future agreement. Market uncertainty now hinges on how US policy toward Iran, Russia, and Venezuela will ultimately shape overall global supply [1].

Despite the Trump administration’s pro-production stance, US light tight oil (LTO) output is beginning to lose momentum. With oil prices falling below $60/bbl, drilling activities are becoming less economically feasible for some producers, posing a risk to supply growth. However, the non-OPEC+ group is projected to reach record production levels in 2025 and 2026, driven by the launch of significant new conventional offshore projects [1].

Ongoing geopolitical tensions, such as the Russia-Ukraine war and conflicts in the Middle East, continue to threaten global oil supply, heightening the risk of price volatility. The potential for renewed or escalating hostilities poses a serious threat to energy trade flows and overall supply stability [1].

The International Monetary Fund (IMF) made notable cuts to its global growth forecast in its April World Economic Outlook report, cautioning that increasing trade tensions and greater policy uncertainties are expected to significantly affect global economic activity. The IMF projects global economic growth to fall to 2.8% in 2025 and to 3.0% in 2026—well below the January forecast of 3.3% for both years [1]. The IMF also slashed its 2025 US economic growth forecast by 0.9 percentage points to 1.8%, marking the largest downward revision among major advanced economies.

The economic performance of Europe has exceeded expectations in first-quarter 2025, with the eurozone experiencing an annualized GDP growth of 1.4%, matched by a similar growth rate in the UK. The HCOB Eurozone Manufacturing PMI has consistently improved over the first four months of the year [1].

Emerging Asian economies remain the primary engines of demand expansion. In 2025 and 2026, they are projected to account for most of the total growth, with petrochemical feedstocks such as naphtha, LPG, and ethane leading product-level increases. Meanwhile, the demand for transport fuels is slowing. China’s oil demand growth is now forecast at 134,000 b/d in 2025, down from a January projection of 220,000 b/d, amid trade hostilities with the US and a slowing economy [1].

Brent crude prices are expected to retreat in 4Q25, potentially falling below $60 per barrel. Investors are recommended to stay defensive and focus on upstream maintenance providers [1].

References:
[1] https://www.ogj.com/general-interest/economics-markets/article/55296897/oil-markets-turbulent-amid-tariffs-opec-supply-hikes