Last year in oil was marked by chronic trader pessimism about Chinese demand and downplaying supply disruption risks. It was a stable year in prices—and the stability could continue in 2025 depending on geopolitical tensions, economic growth, and infrastructure capabilities.

Here we examine the key factors influencing oil prices in the current market landscape:

Asian Demand Dynamics

China’s oil demand growth remains a crucial driver of global oil prices, as it is expected to peak in 2025, moving the peak year from 2030, which was the prediction in 2023. The country’s shift toward cleaner energy sources has been gradual, with the expansion of China’s electric vehicle market and LNG truck growth lower than initially projected.

India has emerged as an increasingly important player in global oil markets, with its robust economic growth in industrialization, urbanization, and a growing middle class driving higher energy consumption. The country’s refineries have expanded their capacity to meet domestic demand, while also positioning India as a regional refining hub. The government’s push for energy security has led to diversification of oil sources, though price sensitivity remains a key factor in India’s purchasing decisions.

Supply-Side Challenges

OPEC’s influence on global oil markets remains significant, though the organization faces new administration in the US, and in maintaining market stability. Supply disruptions have occurred due to several factors, including political tensions among member states and disagreements over production quotas. The organization’s ability to respond to market changes has been tested by the emergence of new production sources and evolving global energy policies. Many expect a supply glut in 2025, but that’s based on assumptions about EV adoption that have consistently tended to disappoint.

Iran’s position in the global oil market continues to be influenced by international sanctions. The status of nuclear negotiations and their impact on sanctions relief has created uncertainty in the market, affecting global supply calculations and regional energy dynamics.

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Recent Supply Shocks

Several significant supply disruptions have impacted oil prices in recent years:

  • The Red Sea shipping crisis, a critical canal for 30% of the world’s container traffic, led to increased transportation costs and supply chain disruptions, causing temporary price spikes as vessels were forced to take longer routes around Africa
  • Severe weather events in the Gulf of Mexico, including major hurricanes, have periodically disrupted offshore production and refinery operations along the U.S. Gulf Coast
  • Political instability in key producing regions has caused intermittent supply disruptions, affecting global oil availability and price stability 

Refinery Infrastructure

Global refinery capacity has undergone significant changes, with older facilities in developed nations facing closure pressure due to environmental regulations and economic factors. Meanwhile, new refinery capacity has emerged in Asia and the Middle East, shifting the global refining landscape.

U.S. Refining Sector

The United States’ refining sector faces several challenges despite its strategic importance. While Canada remains the largest source of U.S. oil imports (approximately 60%), followed by Mexico (20%), domestic refinery infrastructure requires significant modernization. Many U.S. refineries were originally designed to process heavier crude grades, which has created some mismatch with the lighter crude produced from shale formations.

Key issues facing U.S. refineries include:

  • Aging infrastructure, with many facilities operating for several decades and requiring substantial maintenance investments
  • Environmental regulations drive the need for expensive upgrades and modifications
  • Competition from newer, more efficient refineries in other regions
  • Labor shortages and skilled workforce challenges affecting operational efficiency

The interplay of these factors continues to influence global oil prices, creating a complex market environment where supply, demand, geopolitical tensions, and infrastructure capabilities all play crucial roles in price determination. The energy transition toward renewables adds another layer of complexity to long-term oil market dynamics, though immediate price influences remain largely tied to traditional supply-demand factors and geopolitical events.

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