Over the past 5 and 10 years, Dated Brent (North Sea Dated) crude oil prices have averaged US$75.40/bbl and US$66.27/bbl, respectively, while WTI traded at a discount to Brent, averaging US$71.03/bbl and US$62.01/bbl during the same periods. In 2024, Brent averaged US$80.76/bbl, while WTI traded at US$75.89/bbl. Post-Covid, the dated Brent price averaged about US$83/bbl. For the first time in four years, WTI futures prices have entered backwardation, signalling lower price expectations in the near term by market participants.
Crude oil prices in 2025 will be influenced by a complex interplay of U.S. energy and foreign policy, along with global supply-demand dynamics and geopolitical factors. Many analysts are forecasting a bearish trend through 2026, with resistance around US$70 per barrel. While some expect prices to revert toward the 10-year average, there is also the potential for fluctuations within the 2024 range. However, the U.S. will increasingly play a central role in shaping these outcomes, both as a major oil and gas producer and through its strategic foreign policy actions.
From a supply perspective, OPEC, which controls around 70 percent of the world’s proven crude oil reserves, has kept production steady, with output levels remaining below pre-COVID levels. This is part of the organisation’s strategy aimed at stabilising the market through production cuts. OPEC’s supply could even decline year-on-year in 2025 if the incoming Trump administration does not find strategic accommodation of Iran over crude oil sanctions. During Trump’s first term, sanctions led to a sharp drop in Iranian production, which plummeted by as much as 1.7 million barrels per day at its lowest point. While this reduction did not significantly impact prices due to the COVID-19 pandemic, global demand has since rebounded, now surpassing pre-COVID levels by 2 million barrels per day, with expectations for an additional 1 million bopd increase this year. If Iran’s production were to suffer another substantial loss, oil prices could face significant upward pressure in 2025, unless there is a major economic downturn that exerts a countervailing effect on prices.
Although Saudi Arabia possesses the spare capacity to ramp up production and offset losses from Iran, a constrained supply environment could serve the economic interests of Saudi Arabia and other OPEC members better in the short term. Furthermore, OPEC+ has recently made the decision to delay the unwinding of production cuts, possibly throughout 2025, making substantial increases in production from the group unlikely. This raises the question: where should we expect supply growth to come from?
In contrast to OPEC, non-OPEC countries, particularly in North America, have driven global oil supply growth over the last decade at a rate surpassing the global average. Specifically, North American daily production increased by over 8.1 million barrels per day (bopd), compared to a global increase of 7.6 million bopd during the period. This means North America played a crucial role in offsetting production declines from other regions. The region has transitioned from being a net importer, with a supply-demand deficit exceeding 4 million bopd, to a net exporter of 4 million bopd. This shift carries significant strategic implications for the United States, positioning the country to take a more influential role in global energy policy while advancing its foreign policy objectives. In the short term, U.S. production could help mitigate disruptions from Iran or OPEC countries, providing stability to oil prices—especially if Trump follows through with his “drill, baby, drill” policy, which aims to increase domestic production by an additional 3 million barrels of oil equivalent per day.
While stricter enforcement of sanctions against Iran would likely lead to an immediate reduction in supply, potentially driving up prices, Trump’s additional barrels of oil may not fully influence prices in 2025. Consequently, a reduction in Iranian production without alternative sources to compensate could put upward pressure on prices. On the flip side, if production increases from the US, leading to oversupply, this could result in lower prices. Should prices decline, the balance between supply and demand achieved by the U.S. could be threatened from an investment perspective, representing a potential unintended consequence of Trump’s aggressive drilling policy.
The primary goal of investments is not just to break even but to generate returns for investors. Given that capital is fungible, it tends to flow toward projects that promise higher returns. In 2024, producers in the Permian Basin, which accounts for 65 percent of U.S. oil production, required a higher break-even price for new wells, ranging from $62 to $70 per barrel, compared to $38 to $45 per barrel for existing wells. The post-COVID-19 price range for West Texas Intermediate (WTI) has significantly shaped investment decisions, encouraging more investment in new wells and boosting supply from tight formations in the U.S. Increased production, as proposed, would strengthen supply-demand balance and enhance short-term energy security. However, if oil prices fall below the breakeven point due to an oversupply caused by aggressive drilling, it could deter further investments, undermining production levels and potentially jeopardising the energy security objectives that the policy intends to achieve.
The resolution of the ongoing Russia-Ukraine conflict, as promised by Trump, coupled with a proposed 25% tariff on imports to the U.S., including oil and gas from Canada and Mexico, poses a moderate risk to global oil prices. Despite the G7 sanctions on Russia aimed at curbing the country’s ability to finance the war by imposing a price ceiling on Russian crude, the sanctions have not significantly impacted oil volumes. Shadow tankers have emerged to facilitate the continued offtake of Russian crude at prices above the ceiling, leading to limited disruption in Russia’s oil exports since the war began in 2022. Therefore, we are not likely to see a major shift in supply from Russia from the current levels, especially from the standpoint of the country’s pact with OPEC, even if the war is amicably resolved.
Trump’s energy policy will therefore require a delicate balancing act. While high oil prices are unfavourable for the U.S. economy, maintaining low oil prices is also problematic for energy security. As such, Trump’s domestic and foreign policies must strike a careful equilibrium. With all factors in consideration, oil prices are likely to remain within a range, supported at US$75 per barrel and capped at US$80 per barrel in 2025. In a worst-case scenario, the resistance level could fall to US$70 per barrel, though average prices are expected to remain above this threshold.
Glenn writes from Lagos, Nigeria.
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