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Oversupply puts pressure on the oil markets in 2025

Monthly Update

21/05/2025 • 2 minute read

Steffen Kunkel - Chief Investment Strategist

Oil prices will remain volatile in 2025. Demand is being weighed down by trade tensions and lower demand growth in China, while the increase in production by OPEC+ is raising fears of oversupply. As a result, prices are expected to fall due to uncertain market conditions.

Concerns regarding the growth in demand

The outlook for oil demand in 2025 is problematic due to a combination of geopolitical and economic factors. After a slowdown in 2024, demand growth is expected to improve slightly, but the emergence of a trade war has cast significant doubt on these forecasts. Demand growth was originally forecast to reach 1.0 million barrels per day (mb/d) in 2025, but the trade war could reduce this figure to 0.7 mb/d.

A major factor contributing to this weakened demand is China's diminished role in the global oil market. Once a key driver of demand growth, China's contribution to this growth has fallen significantly - from 70% to just 20%. This decline is largely due to an economic slowdown and structural changes within the country. For example, the increasing electrification of transportation, with electric vehicles accounting for 50% of sales, has reduced dependence on oil. The expansion of the high-speed rail network, which competes with air travel, is also contributing to the decline in demand for oil. In addition, China dominates the production of solar panels, which account for 95% of global production, and wind turbine production, which accounts for 60%, underlining the shift towards renewable energy sources.

“Once a key driver of demand growth, China's contribution to this growth has fallen significantly - from 70% to just 20%.”

Steffen Kunkel, Chief Investment Strategist

Fear of a supply glut

Surprisingly, OPEC+ has decided to increase production. A decision taken despite falling prices, expectations of weaker demand and a US-led trade war that is hurting oil prices. The move by OPEC+ has unsettled the market and raised concerns among investors that the markets will be oversupplied with oil in the coming year. In the USA, however, it is difficult for shale oil producers to increase production at current prices. Although the US government supports drilling, price is the most important factor influencing the increase in production. Studies suggest that shale oil producers will want to cut back their investments slightly if the oil price does not rise to USD 89 per barrel (USD/b), which limits the potential for expansion.

Conclusion

The combination of increased production by OPEC+ countries and weaker demand growth is leading to a downward trend in oil prices. 

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As of June 2025