Supply Glut to Weigh Down on WTI Crude Prices in 2025
Outlook for crude oil prices in 2025 is a complex interplay of various factors. China’s fiscal & monetary policies, Trump’s energy agenda, OPEC+ strategies, and geopolitical developments will collectively sway oil prices.
For now, the outlook for 2025 remains bearish. Analysts expect persistent oversupply, driven by rising non-OPEC+ production. Demand growth will remain tepid.
TRUMP’S PRO-OIL STANCE TO DRIVE PRICES LOWER
Trump’s pro-oil stance is expected to pressure oil prices by increasing US energy production in an already oversupplied market.
In his victory speech, Trump vowed to halve energy costs by maximizing domestic US production, calling its reserves “liquid gold.” His plans include expanding drilling on federal lands, easing lease access, and fast-tracking energy infrastructure.
In 2023, federal lands accounted for 26% of US oil output. Exploration & production slowed under the Biden administration due to reduced lease sales, higher royalties, and bond requirements.
Source: Visual Capitalist & U.S. Department of the Interior – Bureau of Land Management
During Trump’s first term, federal land lease issuances averaged 1.62 million acres annually compared to 138k acres under Biden, marking a whopping 91% drop.
Trump’s first term saw US oil output rise by a record 3 million bpd, the largest increase under any administration. A second Trump term and a “Drill, Baby, Drill” mantra is expected to boost oil production.
US producers require an average oil price of USD 64 a barrel for profitable drilling as per the Dallas Fed Energy Survey. However, reduced regulation, streamlined approvals, tax incentives, & potential reversals of Biden-era policies could lower production costs & encourage more drilling.
TRUMP’S TRADE & GEOPOLITICAL POLICIES TO WEIGH DOWN ON OIL PRICES
Escalating trade friction risks remain high, as Trump’s tariffs warnings on imports from Mexico, Canada, & China have fuelled uncertainty in global trade. Retaliatory measures, like those seen during 2018, could resurface. Rising supply and shrinking demand will press prices lower.
For example, Chinese buyers shunned US crude due to tariff risks, widening the WTI-Brent discount from USD 3/b to over USD 11/b. However, with China’s share of US crude exports dropping from 25% in early 2018 to 7% in June 2024, spread divergence will be less pronounced.
Source: ING Research
Trump promises to swiftly end the Ukraine-Russia war and reduce tensions in the Middle East. For now, the specifics remain unclear.
Success in easing geopolitical risks will significantly reduce the oil market’s “war-risk” premium, potentially driving prices even lower.
Conversely, Trump’s staunch support for Israel and a hawkish stance on Iran may exacerbate tensions in the Middle East. In his first term, he re-imposed sanctions in 2018 that led to a sharp drop in Iranian oil exports. Under Biden, these sanctions remained but were loosely enforced, allowing Iran to boost output to 3.4m bpd from 2.5m bpd in early 2023.
Trump’s return could bring stricter enforcement against Iran, potentially removing 1m bpd from the market. However, with most Iranian exports now directed to China, disrupting these flows may prove challenging. ING analysts expect Iranian supply to stabilize at 3.3m bpd through 2025.
OPEC+ REMAINS WARY OF TRUMP’S SECOND TERM
OPEC+ in its latest meeting delayed the phased return of 2.2m bpd of supply from January to April and extended some cuts through 2026. While these measures are expected to slightly narrow the surplus production in 2025, continued output growth from non-OPEC+ will weigh on prices.
US oil production has surged by 11% between 2022 and 2024 to 21.6m bpd, eroding OPEC+ market share to its record low of 48% in 2024 from 55% in 2016 when the group was formed. OPEC+ fears a further rise in US output under Trump, which could diminish its ability to sustain prices.
The extended cuts of OPEC+ in 2025 risk further declines in its market share. Prolonged low prices will shrink OPEC+ producers' oil revenues and increase the risk of disagreements within the cartel. Disagreements will result in OPEC members supplying more crude in breach of their production cuts.
CHINA SHIFTING AWAY FROM CRUDE WITH WIDESPREAD EV & LNG TRUCK ADOPTION
Deflationary pressures, persistent property market crisis and a rapid shift to EVs & LNG trucks are dampening crude demand in China, the world’s largest crude importer. It has been the key driver of global demand growth for two decades.
According to China National Petroleum Corporation’s Economic and Technological Research Institute (ETRI), Chinese oil demand is projected to peak at 770 million tonnes in 2025. This is driven by growing adoption of EV, LNG trucks, and high-speed rail.
Sluggish oil demand in China has led the EIA, IEA, and OPEC to lower their global oil demand forecasts several times. In December, OPEC revised its 2024 forecast downward for the fifth consecutive time.
HYPOTHETICAL TRADE SETUP
Rising non-OPEC+ production & tepid demand are expected to amplify an oversupplied oil market in 2025, putting downward pressure on prices. Donald Trump’s energy policies are likely to exacerbate this imbalance further widening the gap between supply and demand.
Portfolio Managers and Traders can express this bearish view using CME Micro WTI Crude Oil Futures. CME Micro WTI Crude Oil Futures offer the same exposure to crude oil price movements as standard WTI futures, but at 1/10th the contract size, making them a more accessible and flexible option for traders, enabling more granular hedging.
This paper posits a short position in CME Micro WTI Crude Oil Futures expiring in March 2025 (MCLH2025) with the following trade setup:
• Entry: 70.50/barrel
• Target: 65.70/barrel
• Stop: 72.00/barrel
• P&L at Target (per lot): +480 ((70.50 – 65.70) x 100)
• P&L at Stop (per lot): -150 ((70.50 – 72.00) x 100)
• Reward-to-Risk Ratio: 3.2x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
For now, the outlook for 2025 remains bearish. Analysts expect persistent oversupply, driven by rising non-OPEC+ production. Demand growth will remain tepid.
TRUMP’S PRO-OIL STANCE TO DRIVE PRICES LOWER
Trump’s pro-oil stance is expected to pressure oil prices by increasing US energy production in an already oversupplied market.
In his victory speech, Trump vowed to halve energy costs by maximizing domestic US production, calling its reserves “liquid gold.” His plans include expanding drilling on federal lands, easing lease access, and fast-tracking energy infrastructure.
In 2023, federal lands accounted for 26% of US oil output. Exploration & production slowed under the Biden administration due to reduced lease sales, higher royalties, and bond requirements.
Source: Visual Capitalist & U.S. Department of the Interior – Bureau of Land Management
During Trump’s first term, federal land lease issuances averaged 1.62 million acres annually compared to 138k acres under Biden, marking a whopping 91% drop.
Trump’s first term saw US oil output rise by a record 3 million bpd, the largest increase under any administration. A second Trump term and a “Drill, Baby, Drill” mantra is expected to boost oil production.
US producers require an average oil price of USD 64 a barrel for profitable drilling as per the Dallas Fed Energy Survey. However, reduced regulation, streamlined approvals, tax incentives, & potential reversals of Biden-era policies could lower production costs & encourage more drilling.
TRUMP’S TRADE & GEOPOLITICAL POLICIES TO WEIGH DOWN ON OIL PRICES
Escalating trade friction risks remain high, as Trump’s tariffs warnings on imports from Mexico, Canada, & China have fuelled uncertainty in global trade. Retaliatory measures, like those seen during 2018, could resurface. Rising supply and shrinking demand will press prices lower.
For example, Chinese buyers shunned US crude due to tariff risks, widening the WTI-Brent discount from USD 3/b to over USD 11/b. However, with China’s share of US crude exports dropping from 25% in early 2018 to 7% in June 2024, spread divergence will be less pronounced.
Source: ING Research
Trump promises to swiftly end the Ukraine-Russia war and reduce tensions in the Middle East. For now, the specifics remain unclear.
Success in easing geopolitical risks will significantly reduce the oil market’s “war-risk” premium, potentially driving prices even lower.
Conversely, Trump’s staunch support for Israel and a hawkish stance on Iran may exacerbate tensions in the Middle East. In his first term, he re-imposed sanctions in 2018 that led to a sharp drop in Iranian oil exports. Under Biden, these sanctions remained but were loosely enforced, allowing Iran to boost output to 3.4m bpd from 2.5m bpd in early 2023.
Trump’s return could bring stricter enforcement against Iran, potentially removing 1m bpd from the market. However, with most Iranian exports now directed to China, disrupting these flows may prove challenging. ING analysts expect Iranian supply to stabilize at 3.3m bpd through 2025.
OPEC+ REMAINS WARY OF TRUMP’S SECOND TERM
OPEC+ in its latest meeting delayed the phased return of 2.2m bpd of supply from January to April and extended some cuts through 2026. While these measures are expected to slightly narrow the surplus production in 2025, continued output growth from non-OPEC+ will weigh on prices.
US oil production has surged by 11% between 2022 and 2024 to 21.6m bpd, eroding OPEC+ market share to its record low of 48% in 2024 from 55% in 2016 when the group was formed. OPEC+ fears a further rise in US output under Trump, which could diminish its ability to sustain prices.
The extended cuts of OPEC+ in 2025 risk further declines in its market share. Prolonged low prices will shrink OPEC+ producers' oil revenues and increase the risk of disagreements within the cartel. Disagreements will result in OPEC members supplying more crude in breach of their production cuts.
CHINA SHIFTING AWAY FROM CRUDE WITH WIDESPREAD EV & LNG TRUCK ADOPTION
Deflationary pressures, persistent property market crisis and a rapid shift to EVs & LNG trucks are dampening crude demand in China, the world’s largest crude importer. It has been the key driver of global demand growth for two decades.
According to China National Petroleum Corporation’s Economic and Technological Research Institute (ETRI), Chinese oil demand is projected to peak at 770 million tonnes in 2025. This is driven by growing adoption of EV, LNG trucks, and high-speed rail.
Sluggish oil demand in China has led the EIA, IEA, and OPEC to lower their global oil demand forecasts several times. In December, OPEC revised its 2024 forecast downward for the fifth consecutive time.
HYPOTHETICAL TRADE SETUP
Rising non-OPEC+ production & tepid demand are expected to amplify an oversupplied oil market in 2025, putting downward pressure on prices. Donald Trump’s energy policies are likely to exacerbate this imbalance further widening the gap between supply and demand.
Portfolio Managers and Traders can express this bearish view using CME Micro WTI Crude Oil Futures. CME Micro WTI Crude Oil Futures offer the same exposure to crude oil price movements as standard WTI futures, but at 1/10th the contract size, making them a more accessible and flexible option for traders, enabling more granular hedging.
This paper posits a short position in CME Micro WTI Crude Oil Futures expiring in March 2025 (MCLH2025) with the following trade setup:
• Entry: 70.50/barrel
• Target: 65.70/barrel
• Stop: 72.00/barrel
• P&L at Target (per lot): +480 ((70.50 – 65.70) x 100)
• P&L at Stop (per lot): -150 ((70.50 – 72.00) x 100)
• Reward-to-Risk Ratio: 3.2x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Full Disclaimer - linktr.ee/mintfinance
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