Crude prices forecast to hover in the $70s amid potential surplus and Trump impact

Anticipated tighter sanctions on Iran by the coming Trump administration may be a positive for oil prices in 2025, say analysts

An oil rig in the Pacific. US president-elect Donald Trump has vowed to boost domestic oil and gas drilling by loosening environmental regulations and speeding up permits for new projects. EPA

A potential market oversupply and softening demand from China and developed economies are expected to push oil prices lower this year.

Most banks and agencies have forecast a Brent crude oil price decline to an average of $70-$75 per barrel in 2025 from last year's $80 per barrel, citing growing global production, reduced geopolitical risk, and shifting Chinese demand patterns.

Concerns about economic growth next year are increasing, as US president-elect Donald Trump is poised to impose significant tariffs on goods imported from China and other allied countries.

UBS expects a “closely balanced” oil market this year after it was “undersupplied” in 2024, Giovanni Staunovo, a strategist at the Swiss bank, told The National.

The lender, which has projected Brent crude oil prices of $80 per barrel for 2025, anticipates a modest global supply surplus of 100,000 barrels per day.

This contrasts with the International Energy Agency's forecast of a more substantial 950,000 bpd supply overhang, which the agency, in its latest oil market report, warns could rise to 1.4 million bpd if Opec+ begins unwinding production cuts at the end of March 2025.

Opec+ policy

On December 5, the group extended its voluntary output cuts of 2.2 million bpd, which were originally scheduled to be gradually phased out starting in October 2024, until the end of March this year.

Opec+ will most likely extend the cuts further if needed despite concerns about the group losing market share to other producers, analysts said.

“Action taken by Opec+ in early December has shown participants that the group appears committed to trying to keep the market in balance,” Warren Patterson, head of commodities strategy at ING said in a research note last month.

Mr Staunovo also echoed those views, saying that there is “no indication that the group aims to fight for market share and flood the oil market”.

ING expects Brent prices to average $71 per barrel this year due to oversupply but noted that there are clear risks to its outlook, including stricter enforcement of sanctions against Iran.

Mr Trump plans to significantly tighten sanctions on Iran and restrict its oil exports as part of his “maximum pressure” campaign.

Iran, which successfully circumvented sanctions under the Biden administration, saw its crude oil production increase to about 3.32 million bpd in November from 2.86 million bpd the month before, Opec said, citing secondary sources.

China and crude demand

Crude oil prices declined in the second half of 2024 as demand weakened in China, thanks to an economic slowdown and rapid adoption of electric and hybrid vehicles.

The IEA has previously said that demand for petrol in the world’s second-largest economy would peak in 2024, while S&P Global Commodity Insights is projecting a peak this year.

However, investors have grown more optimistic following Beijing's announcement of stimulus measures to revive its economy, which has been affected by weak consumer spending and a property market downturn.

China should “moderately” benefit from stimulus measures, but the impact on oil demand growth will likely be “modest”, Mr Staunovo said.

Global oil demand is set to grow by 1.1 million bpd this year, up from 840,000 bpd in 2024. While growth in China has slowed, emerging Asian economies are still expected to drive most of the increase, according to the IEA.

Geopolitical risks fade

Increased supply, coupled with uncertain demand growth and a fading of risk premia, will likely continue to pressure oil prices, said Emirates NBD, which expects Brent to average $73.1 a barrel this year.

While geopolitical tensions created short-term volatility in oil prices last year, the absence of major supply disruptions limited the impact of these risks on the oil market.

Despite escalating tensions in the Middle East, including the Gaza war and direct exchanges between Iran and Israel, Brent crude oil prices have declined by nearly 18 per cent since reaching a peak of $92 per barrel in April.

Opec’s spare capacity of more than 5 million bpd has also helped cushion the impact of geopolitical events, reassuring traders that the group could supply additional barrels to the market in the event of a disruption.

Growing supply

The prediction of an oil market glut this year is also driven by expectations of strong production increases in countries outside of the Opec+ alliance, which includes Saudi Arabia and Russia.

For 2025, non-Opec+ liquids supply is projected to grow by 1.1 million bpd, with the US, Brazil, Canada, and Norway leading the increase, according to Opec.

The US government expects supply to be higher. The Energy Information Administration (EIA) projects global oil production to rise by 1.6 million bpd this year, with 90 per cent of the growth – roughly 1.44 million bpd – coming from countries outside Opec+.

US oil and gas production is set to increase to 13.5 million bpd this year, up from the EIA's estimate of 13.2 million bpd for 2024.

The EIA, in its latest Short-Term Energy Outlook, has forecast a "relatively balanced" oil market for 2025, resulting in an estimated Brent price of $74 per barrel. This is a decline from their 2024 forecast of $81 per barrel.

Mr Trump has vowed to boost domestic oil and gas drilling by loosening environmental regulations and speeding up permitting for new projects.

Analysts believe that Mr Trump’s policies will not significantly boost US oil production this year, as the industry mostly responds to market signals, such as oil prices, and ongoing consolidation within the US shale patch is expected to further limit drilling activity.

However, the president-elect's aggressive tariff policies could hinder economic growth, potentially dampening global crude oil demand.

Mr Trump has proposed a 60 per cent tariff on goods from China and a blanket 20 per cent tariff on all imports into the US. In November, Mr Trump said he would sign an executive order imposing a 25 per cent tariff on goods imported into the US from Mexico and Canada.

He has also threatened the EU with tariffs if the bloc does not increase its purchases of US oil and gas.