Five Things to Watch in Energy Markets in 2025

The International Energy Agency (IEA) forecasts 2025 demand growth of one million barrels per day, a level that was similar to 2024. However, in 2025, more than 50% of that demand is expected to come in the form of natural gas liquids (NGLs) like propane and butane, which are used as a petrochemical feedstock and produced mainly as a co-product of natural gas. 

From a 2019 baseline, S&P Global Commodity Insights sees 2025 demand for traditional oil-based fuels like gasoline and diesel rising by only 300,000 barrels per day. China’s demand for these fuels has peaked as investments in vehicle electrification and LNG-based trucking fleets reach a tipping point. 

This shifting product mix is a challenge for oil refiners in China and elsewhere, who have seen narrowing profit margins and announced a series of plant closures. Adding more pressure to existing refiners in 2025 is new refined products supply from the Dangote refinery in Nigeria, which is still ramping up production, and with the potential commissioning of the new Olmeca refinery in Mexico later in the year. Refiners that bear high costs of operations from importing crude oil, exporting product, high energy costs or all the above are likely candidates for more capacity rationalization in 2025. Traders will closely be watching for these announcements to guide price outlooks in the coming year.

Several changes are expected in the biofuels market in 2025 with a greater emphasis on the role of feedstocks that deliver higher greenhouse gas savings to reach more ambitious carbon reduction goals. The non-traditional feedstocks such as waste oils look set to become a bigger feature of the market as governments make adjustments in an attempt to achieve net zero carbon emissions by 2050. 

A much wider range of feedstocks is expected to emerge as governments review the greenhouse gas savings for each product and permit them for use. Regions like the European Union, through their Renewable Energy Directive, have already approved a wide range of biofuel feedstocks, and other countries are beginning to implement similar moves. 

The trading of the waste feedstocks – such as waste oils and animal fats – are expected to grow as a proportion of the overall biofuel supply. Given the growth of advanced biofuels such as renewable diesel, the pressure on the supply chains of some key feedstocks is only likely to intensify as the number of buyers continues to expand, potentially outpacing the volume of available products in the market. Other products like sustainable aviation fuels have been allocated their first blending mandates by the European Union, the U.S. and other countries, which will continue to pressurize supply chains in the years ahead.

Amid the uncertainty around upcoming policy changes, continued geopolitical conflicts and slowing growth in major economies, the energy markets are susceptible to significant price movements in both directions. Enhanced price risks have given rapid rise to the use of short-term options, such as CME Group’s WTI Crude Oil Weekly options, since they expire on a weekly cycle, providing traders more precise and lower-cost tools for managing their positions. In 2024, average daily volume in WTI Weekly options averaged more than 20,000 contracts, or 20 million barrels, nearly quadrupled from 2022. 

As price risks persist, the appeal of short-term energy options is likely to grow, making these tools a key area to watch in 2025.

With so many crosscurrents, 2025 will be a pivotal year for energy markets as supply and demand factors could be influenced by many possible external events. Risk management in energy markets is likely to continue apace as traders look to cover many uncertain events that could unfold during the course of 2025.