Energy 2025 outlook

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Executive summary │ Energy 2025 outlook

Abundant supply, watch the tails

Hedging  tail risks but supply-demand dynamics remain favourable

Stay selective across the energy complex

Top trades

• There is more uncertainty in energy markets heading into 2025 than in any year since the pandemic. Granted, uncertainties around the Ukraine (land) war, Middle East (hot) war and the US presidential elections are past their peaks, but hedging (fat) tail risks are top of mind.

• Encouragingly, energy price spikes that are usually associated with geopolitical events have a lower probability in playing out this time around as global supply-demand fundamentals are exerting greater influence today. Crude oil markets are in oversupply and the mega-wave of LNG supply that was set to hit natural gas markets in 2025 is delayed (by a year), not derailed.

• We recommend a selective bias in 2025 given differentiation in energy fundamentals:

  • Crude oil (bearish). An unresolved surplus (+0.9m b/d) and high spare capacity (~6m b/d) in 2025 is bearish but, two-tail risks of breakouts in our USD65-80/b corridor on Trump-induced tariffs and/or geopolitical uncertainty, are tangible. With such an oversupplied outlook, oil prices should fall to drive a rebalancing. However, as long as supply disruption risks keep prices supported in 2025, the surplus will remain unresolved.

  • Natural gas (bearish-to-neutral). Delays to the ramp up of US LNG projects have pushed out our lower US/EU gas prices to 2026. In Europe, inventories are now below historical averages, keeping the call on LNG high. Though gas (TTF) prices are now costly vs other fuels, capping the upside (slowdown in fuel switching curbs demand growth).

  • Refining (neutral-to-bullish). Despite ample spare capacity in oil production, refining is  set to remain tight, with refining utilisation still in the top ~30% of its historical average.

• Based on our selective 2025 energy conviction, we advocate two trades:

  • Long/short oil – upside on low valuations/Iran supply risks; downside on high spare capacity.

  • Short gas – upcoming mega-supply wave of LNG supply drive prices below lignite economics.