Market update report

Summary: Recent crude oil price trends reflect an imbalance of supply and demand, volatile geopolitical dynamics and restrictive trade policies. This spotlight provides a brief update on crude oil market drivers.

Market fundamentals

Oil demand picked up slightly in Q1 2025 due to excessively cold weather among northern hemisphere countries and increased economic activity in Asia. While the U.S. is entering its peak demand season, prices remained 13% below their 20-year average as of late June due to several factors:

• The Organization of Petroleum Exporting Countries (OPEC+) is scaling back voluntary production cuts and increasing output. The U.S. and Canada are producing at/near peak levels.
• Persistently high interest and inflation rates in the U.S. and abroad are weighing on business investment and consumer spending, core drivers of economic growth and oil demand.
• The Trump Administration is attempting to resolve trade imbalances through the threat/use of tariffs. The net effect has been softer oil demand in futures markets due to weaker economic growth projections.
• The Trump Administration issued an executive order to increase domestic oil and gas production; however, this is unlikely to materialize until prices increase. The average break-even cost to bring a new shale plant online is about $65/barrel.

Geopolitical tensions continue to drive market volatility. Oil prices jumped 16% following Israel’s attack on Iran. Iran is among the largest global producers and capable of disrupting trade flows through the Strait of Hormuz, the second most important oil transit chokepoint behind the Strait of Malacca. While prices fell following a ceasefire, peace remains fragile and another flare-up or risk thereof could increase volatility again.

Looking forward – While Asian economies are expected to drive slight gains in global oil demand in 2025 and 2026, strong production levels along with weakness in several large economies like the U.S. may continue to pressure prices. Relatively low oil prices should take some of the pressure off agriculture producers.

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