Fri, 03/14/2025 - 07:42
After the launch of Biden's Green New Deal five years ago, fossil fuels were quite literally put on the back burner. Renewable energy enjoyed explosive growth, and many of us started to imagine a world without oil and gas. However, as is usually the case, the hype was short-lived, and both crude and natural gas went on to hit unprecedented all-time highs in the summer of 2022. Since a major correction in the second half of that same year, the market has been trading more or less sideways. Brent is currently (13/03) trading at $71.00 per barrel, down 14% year over year, while WTI stands at $67.75 with similar annual losses. At $4.21, the Henry Hub gas price, on the other hand, is up almost 40% since December 2024, though it is still more than 50% below its all-time high of $8.81 reached in August 2022.
However, with tensions rising in a number of fuel-producing nations and the high-demand summer driving season approaching, the future direction of prices is hard to predict. The new Republican government is keen to develop the industry, though OPEC+ holds significant power in the immediate time frame. In this article, we'll look at a range of factors likely to impact supply and demand over the short and medium term, with a view to establishing where prices could be headed in 2025.
Drill, baby, drill
President Trump has been unequivocal about the need for more fossil fuels and has taken concrete steps to incentivise the exploration and commercialisation of oil and gas projects both within the US and abroad. Early last month, he signed an executive order formally creating a National Energy Dominance Council to ramp up domestic production. This comes after he granted a conditional export authorisation for a huge liquefied natural gas project in Louisiana and directed Interior Secretary Doug Burgum to undo Biden's ban on future offshore oil drilling on the East and West coasts. The Trump administration has also set its sights on Africa, whose existing oil and gas projects are in need of expansion and modernisation to meet the needs of the 600 million Africans still without electricity.
While these initiatives are likely to benefit the industry at large and boost the share prices of many oil and gas firms, they are liable to depress commodity prices due to the increase in supply. However, such projects take many years to come online. In the short term, though, Trump's threats of 10% tariffs on Canadian oil imports, if imposed, will surely cause short-term spikes in oil prices, especially given the weaker US dollar.
Release some tension
Beyond the US, we see a world still in turmoil. Tensions are still high in Europe, and the Middle East is poised on a knife-edge. Both regions contain major producers of both commodities and until lasting peace is brokered, there will always be supply-side risks that could lead to increased prices. In the latest EIA inventory, US gasoline stockpiles fell 5.7 million barrels, a much larger drop than was forecast.
Meanwhile, OPEC+ is struggling with production compliance requirements, as rising crude output from key producers complicates supply management. Kazakhstan has been the main offender, consistently producing more than its 1.468 million bpd quota throughout February. Russian Deputy Prime Minister Alexander Novak has stated that OPEC+ has agreed to start ramping up oil production from April, but this could change if market imbalances continue. Naturally, oversupply should lead to lower oil prices, but with demand still averaging 102.2 million and inventories dwindling, it's hard to predict.
As for gas, the delay to US LNG export terminals coupled with the periodical closure of the Strait of Hormuz has and will continue to frustrate gas supplies to Europe, thus supporting higher prices. Thus, while there is much talk of capacity building for both oil and gas, these projects will take time. In the short term, price action will largely be determined by OPEC+ supply and the extent of demand in the summer.
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