Crude oil outlook: WTI prices likley to average around $56 by end of 2025

The global crude oil market faces a supply glut, evident in a 12 per cent price drop over two weeks, despite the Ukraine-Russia continued to engage in war, disrupting 20 per cent of Russia’s 5.2 million bpd refining capacity. WTI hit a four-month low below $60/bbl, and Brent fell to $63/bbl, down 16 per cent year-to-date (Y-T-D). The decline reflects a US-led trade war, exacerbating oversupply amid Opec+’s 2.72 mb/d restoration and a 0.5 mb/d surplus.

Supply glut fear

The global crude oil market is in approximately surplus of 0.7-0.8 mbpd by the end of September, with a large contribution coming from Opec+ restoration program, raising the global supplies by 2.5 per cent between April-September period. The IEA's September report emphasised a tightening balance in the short term but warned of a 3.33 million bpd surplus in 2026, revised up 360,000 bpd due to Opec+ revival plans. Demand growth is projected at 740,000 bpd for 2025, up slightly from August estimates, but remains subdued amid economic slowdowns. Non-Opec+ supply, led by the US, is expected to rise 2.7 million bpd in 2025, outpacing demand and fostering inventory builds of 26.5 million barrels in July alone.

 

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US-China tug of war

US-China trade talks have injected uncertainty, with tensions reigniting after Trump's October 10 threat of 100 per cent tariffs on Chinese goods, prompting Beijing to blast the move as a violation of prior agreements. Despite this, working-level discussions resumed on October 13, with Treasury Secretary Bessent noting ongoing negotiations and downplaying escalation risks. Trump softened his stance in a Truth Social post, emphasising dialogue, but markets remain wary, as tariffs could disrupt global supply chains and dampen.

Flattish Asian demand

Asian nations of India and China account for 21 per cent of global demand, while demand so far has remained muted from China, but Indian demand has been bustling due to strong domestic demand. China's crude oil demand in 2025 has been modest, supported by petrochemicals and stockpiling but constrained by economic slowdown (4.6 per cent GDP growth), EV adoption (50 per cent of new car sales), and flat transportation fuel consumption. Crude imports totalled 47.25 million metric tons (MT) in September, equivalent to 11.5 mb/d—up 3.9 per cent year-on-year (Y-o-Y) from September 2024 but down 4.5 per cent month-on-month (M-o-M) from August's 49.49 MT. Y-T-D imports reached 423 million MT (11.58 mb/d average), reflecting a 2.6 per cent Y-o-Y increase. Early-year imports averaged 10.42 mb/d (down 3.4 per cent Y-o-Y), but Q3 rebounded with August's 11 per cent M-o-M surge to 49.49 MT. This reflects high refinery utilisation but seasonal adjustments and lower Iranian shipments.

Easing war premiums

The Gaza ceasefire agreement between Israel and Hamas, finalized on October 3, 2025, has eased war risk premiums, resulting in a 1.7 per cent decline in WTI crude oil prices on October 9. This breakthrough, facilitating the release of all hostages held by Hamas, represents a pivotal step toward concluding the two-year conflict. However, the potential for renewed hostilities between Iran and Israel remains a concern, keeping oil markets on edge. Any escalation could disrupt the Strait of Hormuz through which 20% of global oil flows pass potentially adding a $5–$10 per barrel premium. The news of the US considering arming Ukraine with long-range Tomahawk missiles, which raises the risks of further disruptions to Russian oil supplies, could add to futures risk.

US leading the non-Opec output

US crude oil production remains a supply powerhouse, hitting a record 13.6 million bpd in July 2025, up from 13.5 million bpd in earlier forecasts, per the EIA's October report. Weekly output averaged 13.63 million bpd in the week ending October 3, a 0.92 per cent increase, with the Permian Basin driving gains despite rig cuts (521 in July). The EIA raised 2025 and 2026 forecasts to 13.53 million bpd and 13.51 million bpd, respectively, warning of oversupply slashing prices. Gulf of Mexico output is expected at 1.89 million bpd in 2025, up from 1.84 million bpd.

Outlook

Overall, macro fundamentals in the last two weeks point to a bearish tilt for oil, with surplus fears dominating despite geopolitical buffers. US-China talks remain tense but ongoing, with Trump's threats risking demand erosion. Middle East peace progress has removed risk premiums, while US production records exacerbate gluts. We continued to maintain our bearish views on Crude oil and expect WTI prices to average around $56 by end of 2025. In short term prices could trade in range of $57-$62.  (Disclaimer: This article is by Mohammed Imran, research analyst at Mirae Asset Sharekhan. Views expressed are his own.)