Fossil Fuels Still Vital to the Global Economy
While renewable energy production and consumption are on the rise globally, crude oil – and fossil fuels more broadly - remain vital to the global economy. Roughly 80% of global energy is still supplied by fossil fuels.
The International Energy Agency sees an acceleration in oil demand growth for 2025, forecasting a rise of 1.05 million barrels per day on the year. OPEC projects global oil demand growth rate at 1.4 million bpd in 2025, with a similar growth rate expected in 2026.
Goldman Sachs sees “oil demand to grow for another decade,” pointing to rapid growth in emerging markets. Growth will also be driven by the aviation and petrochemicals industry.
Key supply side factors in 2025 will include new supply from non-OPEC sources, notably the United States, Canada, Guyana, and Brazil. The possible loss of significant portions of Iran’s crude exports amid revitalized sanctions under the new Trump administration as well as other geopolitical issues could also affect supply. Meanwhile, OPEC+ policies, led by Saudi Arabia, continue to play a vital role on the supply side.
Oil Price Outlook 2025: The Key Factors
- The Global Economy: Steady, Unexceptional Growth
The global economy is headed for steady but unexceptional growth in the next two years, according to the latest International Monetary Fund (IMF) World Economic Outlook update, issued on January 17. The IMF projects global growth at 3.3% in 2025, noting that “the global economy is holding steady.”
The IMF also forecasts a decline in global inflation over the next two years[GC1] . This could lead to global monetary easing, ushering in a lower interest rate environment that would fuel more robust growth. IMF Chief Economist Pierre-Olivier Gourinchas described this moment as “the end of a cycle, and the beginning of a new one.”
The World Bank’s Global Economic Prospects report, issued on January 15, also forecasts “broad-based, moderate global expansion over 2025-26,” though its figures come in lower than the IMF at 2.7 percent per year. Over the long-term, the bank warns that “the global economy appears to be settling at a low growth rate.” The IMF also notes that the 2025 and 2026 growth projections of 3.3% fall below historic trends of 3.7% growth from 2000-19.
While both international bodies point to long-term concerns in the growth picture, both see solid growth in 2025, which should underpin steady global oil demand.
- China Demand: Slowing, but Still Vital
The oil story of the first quarter of the 21st century has been one of ever-growing Chinese demand. From 4.8 million bpd consumption in 2000 to roughly 16 million bpd in 2024, China’s dramatic rise in oil use (and imports) has defined the era.
That era of rapid growth is ending, though opinions differ on how abrupt the shift will be. Two reports by China’s most significant energy players – CNPC and Sinopec – suggest that China may be reaching peak oil consumption in the next two or three years. Booming sales of electrical [GC2] vehicles and rising use of LNG-powered trucks have softened demand for refined petroleum. China’s slowing economy has also softened demand.
Despite the headwinds pushing against China demand, the country will remain the largest oil importer through the decade and the second largest consumer, after the United States. Further, some prominent industry players still see room for growth in China. Saudi Aramco CEO Amin Nasser – a major supplier to the middle Kingdom -- said recently that “there is still growth in China,” and the official imports data does not reflect the rising demand. China’s growing renewable energy industry requires significant amounts of oil, Nasser also noted.
While the China crude oil demand growth story may be slowing, the country will still be a vital demand center for crude oil in absolute terms. The IMF forecasts moderate growth (by recent standards) for China in 2025 at 4.6%. which should underpin steady demand.
- India and Emerging Markets Demand Rising
While China has been the dominant demand story for crude oil over the past three decades, India is rising. In 2024, India outpaced China in terms of crude oil demand growth, with a 3.2% rise on the year compared to China’s 0.9% rise, according to S&P Global Commodity Insights. S&P notes that India will likely surpass China again in terms of demand growth in 2025. While China still consumes almost three times more oil than India, the South Asian giant still has significant room for growth.
National energy players have taken note. Saudi Aramco is exploring several downstream investments in India. Other regional players, notably the UAE’s ADNOC, are also exploring India deals. Saudi Aramco and ADNOC have partnered on a potential deal to develop a 1.2 million bpd refinery in west India’s Maharashtra state.
Goldman Sachs [GC3] sees oil demand growth for another decade, fueled by rising demand in emerging markets, with India as the heavyweight. “Energy needs from emerging markets are set to increase sharply as their GDP grows at nearly 4% a year in the second half of this decade,” Goldman wrote in a recent note. “As income rises in emerging markets, so will demand for road and air transportation.”
- Geopolitics: U.S-Iran Showdown Looms Large
In the year 2024, Iran exported some 1.6 million barrels of oil per day. Most of that oil went to China. New sanctions targeting Iran by U.S President Donald Trump, and the tighter enforcement of existing sanctions will likely roll back a portion of Iran’s exports. In a significant move on January 8, China’s Shandong Port announced that it will no longer accept sanctioned tankers. This has already hit Iran’s and Russia’s oil exports to China and pushed oil prices higher.
Iran’s oil exports to China have been aided by a “ghost fleet” of ships and ship-to-ship transfers off the coast of Malaysia that seek to obscure the origins of Iranian oil. China’s official import figures rarely match with widely believed Iranian exports to the country. The Trump Administration is expected to tighten the squeeze on Iran’s exports. If significant numbers of barrels are taken off market, this would exert upward pressure on oil prices.
If tensions between the U.S and Iran escalate beyond sanctions and the Strait of Hormuz becomes a theater of military operations, oil prices will rise substantially.
- OPEC+ Policies and Non-OPEC supply
On December 5, OPEC+ decided to postpone the planned easing of voluntary production cuts amounting to 2.2 million b/d until April. This marked the third delay in reintroducing barrels to the market. The group also extended the compensation period for overproduction until the end of June 2026 and carried forward an additional 3.6 million b/d in overlapping groupwide cuts through to the end of 2026.
A series of planned and coordinated production cuts by OPEC+ members, led by Saudi Arabia, has kept a floor on price falls even amid global surplus capacity. Most forecasting agencies see surplus capacity in 2025, though the sizes of those surpluses range from 1.2 million bpd at the higher end to roughly 100,000 bpd at the lower end.
Non-OPEC producers are expected to account for most of the new supply on the market, led by the United States, which could add some 750,000 new barrels per day to oil markets. Other non-OPEC producers expected to ramp up production, albeit at lower levels, include Canada, Brazil, Guyana, and Argentina. All told, it is estimated that non-OPEC supply will add 1.7 million bpd to global markets.
The Future
Oil markets are sensitive to a wide range of macro issues that affect the supply and demand dynamics. Steady global economic growth – forecasted by the IMF -- should support steady oil demand growth. Still, a wide range of factors from geopolitics to decisions by major oil producers will shape the oil markets in 2025.
While several factors undergird the oil price, one thing is clear: the world economy is still highly dependent on fossil fuels, which account for 80% of all energy needs. While renewable energy is rising, the transition will move methodically, not meteorically. As such, crude oil will remain vital to the future of the global economy for at least the next decade – and beyond.
