Towards the end of October, the oil market saw a brief surge. Brent crude gained nearly 5% after the United States announced a new round of sanctions on Russian oil firms, pushing prices to around US$65 per barrel on October 29th. Despite this temporary rise, the broader trend throughout 2025 has been one of gradual decline. Persistent trade tensions and concerns about excess global supply have kept downward pressure on prices, though geopolitical events occasionally triggered short-lived spikes.
The drop in Brent crude also pulled Urals crude below the long-standing US$60 per barrel price cap (in place since February 2025). By September, policymakers responded by lowering the cap further to US$47.6 per barrel.
Weakening Demand: Slower Growth Ahead
Global oil demand continues to lose momentum. In the third quarter of 2025, demand rose by only 0.8 million barrels per day (mb/d), or -0.7% year-on-year, well below the average growth seen from 2015 to 2019. Forecasts suggest this soft trend will persist, with global consumption projected at 103.8 mb/d in 2025 and 104.5 mb/d in 2026.
Advanced economies are expected to see little change in consumption. China, traditionally a major driver of growth, will likely face a slowdown as electric and hybrid vehicles become more widespread. India, however, is projected to be a bright spot, with strong demand for LPG, gasoline, naphtha, and diesel continuing to support consumption.
Supply Expands as New Production Comes Online
On the supply side, growth is expected to continue. Global oil output for 2025 is projected to rise by 3.0 mb/d (?2.9%), reaching about 106.1 mb/d, followed by another increase to around 108.5 mb/d in 2026. Much of this growth will come from the Middle East & North Africa region, Afghanistan, and Pakistan, and an acceleration across Latin America & the Caribbean. Advanced economies will see slower expansion.
Importantly, nearly half of the global supply increase in 2025 is attributed to OPEC+, driven by higher collective production targets across the group.
Understanding Oil Market Movements Through Economic & Financial Indicators
While financial forces (asset prices, returns, volatility) naturally influence crude markets, recent analysis places greater emphasis on oil supply & demand shocks. For instance:
Christiane Baumeister & James D. Hamilton (2019) refine the structural VAR model by incorporating prior information, acknowledging measurement errors, and reducing the influence of early, unstable data. They find that supply disruptions play a larger role in historical oil-price movements than previously thought.
Further, Baumeister et al. (2020) developed a “global economic conditions” index (GECON) by extracting the first principal component from multiple macroeconomic indicators. Their study finds this index has strong predictive power for energy markets—especially crude oil—outperforming many traditional benchmarks.
Subsequent work (e.g., Hong 2024) underscores the usefulness of combining oil-shock measures with the global conditions index to interpret crude-price dynamics.
Conclusion
This body of work highlights the deep links between global economic cycles and oil-market behaviour, providing a framework for understanding how macroeconomic conditions shape price movements, supply decisions, and long-term demand trends.
Written by – Purnendu Bhowmick
Edited by – Neelambika Kumari Devi
