The oil market in July 2025 was characterized by oversupply risks from OPEC+ production hikes and robust non-OPEC+ output, particularly from the U.S., against weak demand growth in key markets. Prices remained volatile, supported by geopolitical risks but pressured by rising inventories and economic uncertainties. Analysts anticipate a bearish outlook for the rest of 2025, with potential price declines unless summer demand strengthens or supply is curtailed.
In July 2025, the global oil market was shaped by several key factors, based on available data and trends. Global oil demand growth was sluggish, projected at 700 kb/d for 2025, the lowest since 2009 (excluding the 2020 COVID year), down from 1.1 mb/d in Q1 to 550 kb/d in Q2, driven by weak consumption in emerging markets like China and the U.S.
Global oil supply surged to 105.6 mb/d in June, up 950 kb/d month-on-month, led by Saudi Arabia and OPEC+ unwinding voluntary production cuts, with a year-on-year increase of 2.9 mb/d. This supply growth outpaced demand, contributing to a modest surplus and inventory builds, with global oil stocks rising to 7,818 mb in May.
Escalating conflicts, particularly Israel’s airstrikes on Iranian targets in June, briefly pushed Brent crude futures to a six-month high of $74/bbl. However, prices eased after a ceasefire, with North Sea Dated crude averaging $71.35/bbl in June. Iran’s oil exports remained resilient at 1.9 mb/d, mostly to China, despite tightened U.S. sanctions.
Israel’s twelve-day war with Iran resulted in significant damage to regional oil refineries especially the refinery at Haifa which has been the primary driver of higher diesel prices in North America and Europe in the last two months. Crude prices and calendar spreads quickly reverted to pre-war levels but refining margins and calendar spreads for diesel have remained elevated following a sharp drawdown of fuel inventories in the United States and Europe, John Kemp says.
OPEC+ announced a larger-than-expected 550 kb/d production target increase for August, unwinding 80% of the 2.2 mb/d voluntary cuts from 2023, with plans for another potential increase in September. This move, combined with overproduction by members like Kazakhstan, UAE, and Iraq, raised concerns about a supply overhang, potentially exceeding demand by 950 kb/d to 1.4 mb/d in 2025.
Global refinery runs increased by 1.7 mb/d in June, expected to peak at 85.4 mb/d in August, driven by non-OECD regions. Refining margins improved in July due to stronger diesel cracks, though crude price rallies in June had squeezed profitability. U.S. inventories rose by 1.539 million barrels in the week ending July 25, adding to bearish sentiment.
Refinery capacity, pipeline availability, and global supply chain disruptions (e.g., from pandemics or natural disasters) affect oil distribution and pricing. Global refining capacity is set to grow by 3.3 million barrels per day by 2030, but bottlenecks could still create localized shortages.
Trade tensions and U.S. tariffs, particularly on Canada and Mexico, clouded the economic outlook, potentially curbing oil demand. The U.S. Federal Reserve’s anticipated 150-basis-point rate cuts in 2025 and 2026 could stimulate demand but were offset by inflation concerns and a stronger dollar. U.S. shale output, projected at 13.59 mb/d, continued to drive non-OPEC+ supply growth, offsetting OPEC+ efforts to balance the market. The U.S. Energy Information Administration (EIA) projected Brent at $66/bbl for the second half of 2025, reflecting downward pressure from inventory builds.
Global oil prices are primarily driven by the balance between supply and demand. Strong economic growth, especially in emerging economies like China and India, increases demand for oil, particularly for transportation and petrochemicals. Conversely, rising production, led by non-OPEC countries like the United States (via shale oil), can outpace demand, potentially creating surpluses and putting downward pressure on prices. For instance, global oil production capacity is forecast to rise to 114 million barrels per day by 2030, exceeding demand by about 8 million barrels per day.
Political instability or conflicts in major oil-producing regions, such as the Middle East, can disrupt supply chains and create price volatility. For example, tensions in the Strait of Hormuz, through which 20% of global oil flows, have historically caused price spikes. The Russia-Ukraine conflict and sanctions on Russian oil have also influenced prices, as seen with Brent crude surpassing $120 per barrel in 2022 following the EU’s embargo on Russian oil.
The Organization of the Petroleum Exporting Countries and its allies (OPEC+), controlling about 43% of global oil production and 73% of reserves, significantly influence prices by setting production targets. Agreements to cut or increase output, such as the 1.8 million barrels per day cut in 2017, directly impact supply and prices. However, OPEC’s influence has been challenged by increased U.S. shale production.
Global economic growth drives oil demand, while recessions or slowdowns (e.g., during the 2008 financial crisis or COVID-19 pandemic) reduce it. Monetary policies, like U.S. interest rate changes, affect the dollar’s value, which inversely impacts oil prices since oil is traded in dollars. A stronger dollar typically lowers oil prices, and vice versa.
The global push for decarbonization, including electric vehicle adoption and renewable energy investments, is reducing long-term oil demand, particularly in advanced economies. Policies like the EU’s Green Deal and EV mandates are reshaping consumption patterns, though oil remains critical for transport (92% of global transport fuel) and petrochemicals.
Innovations like hydraulic fracturing have boosted U.S. oil production, making it the world’s largest producer since 2018, reducing reliance on OPEC. Meanwhile, advancements in renewables and energy efficiency are curbing oil demand growth, with global demand expected to peak by 2030.
Speculative trading in futures markets and investor sentiment can cause short-term price swings. For example, expectations of supply disruptions or economic recovery can drive prices up, while oversupply fears push them down. The 2020 negative WTI price event highlighted extreme market volatility due to storage constraints and speculation.
These factors interact dynamically, making oil prices volatile and challenging to predict. For instance, while geopolitical risks and OPEC+ decisions can spike prices, growing non-OPEC supply and energy transitions exert downward pressure.
/X, John Kemp/