Who will pay more and who will pay less for oil in 2025?

Photo: Oil facility, eyeonicimages, Pixabay

As China’s refineries’ product demand may reach its limits in 2025, the oil price for those in other locations can surge despite the foreseen global fuel surplus. Why?

According to the International Energy Agency’s forecast for 2025, global oil demand is to increase to an average of one million barrels per day from the level of approximately 830 thousand barrels per day in 2024. This weaker demand growth is in line with the original forecast, however, the largest supply increase is to come from the US, which is already on output records. OPEC+ is also to unwind production cuts in April, which may result in cheaper oil for those who take from the Middle East.

But the US, followed by Canada, Brasil, and Guyana, will also attempt to sell oil on the market. Shall the prices decline in this case? Not necessarily. Why? Because production costs along with transport are different. The cheapest oil extraction is in the Middle East, and this oil is the most productive one, while in the rest of the world, despite sometimes more advanced and efficient technologies, it is not so easy. So, in this case, the global surplus estimated for roughly 600 thousand barrels per day in 2025 may cost. Who will pay? The one who can afford or at least is perceived as the one who can afford.

Economies in Asia are projected to account for nearly 60% of the increase in global oil demand this year. This growth will primarily be driven by China, where petrochemical feedstocks are expected to be the main factor behind this demand, as the need for refined fuels reaches a plateau, according to a statement from the IEA. However, this plateau cannot last indefinitely. Refineries have a limited production capacity, and until that capacity is expanded, the demand for domestically refined fuel in China is likely to decline. While this may pose a challenge for China, it simultaneously creates opportunities for other Asian countries to acquire surplus oil at favorable prices. This situation reflects the structure of China’s economy. Why?

According to the IEA’s statement, Chinese oil demand growth is dominated by petrochemical feedstocks, which are used for plastics and fibers rather than burned as fuels. Meanwhile, shifts in China’s economy, a slump in the country’s construction sector, the expansion of high-speed rail, and strong sales of electric vehicles are limiting oil demand growth for fuels in this country. Economy structure in, for instance, European countries is different, although it is gradually changing in line with the clean energy policy.

The structure of oil use is also changing as there is a boost in energy mix from other sources, including brand new ones. They, in common, may even prevent additional emissions, although at the same time they are boosting them in, for example, cooling demand rising due to global warming.

The IEA emphasizes that any escalating trade tensions, whose macroeconomic effects are currently difficult to quantify, may disrupt the recent forecast.