In 2025, the energy market will enter an era of oversupply of traditional energy resources such as oil and gas. One of the main reasons behind this is the intensive development of alternative energy sources and global structural changes. The main task of all technologically advanced countries that have entered the sixth technological revolution is to increase electricity consumption while reducing the use of oil for its production. This is dictated, among other things, by environmental considerations and energy transition.
However, this is far from bad news for investors—opportunities come with challenges. In this article, let’s dive into the trends of the energy market in the new year.
According to the EIA, Brent crude oil prices are expected to reach $74 per barrel in 2025 due to oversupply and subdued demand. Firstly, the strategic role of oil is gradually decreasing, even though oil has been and will continue to be both a commodity and a financial instrument for balancing the global financial system for the next 10-15 years. Secondly, technologically advanced countries are accelerating the transition to renewable energy sources because they are cheaper and cleaner.
Beyond low demand, there is another issue: gradually rising oil production costs, especially in difficult conditions. The increasing costs are limiting margins and making oil production less attractive to businesses. The development of technologies, including advanced ones in shale production, allows low-cost countries to dominate the market leaving no choice to the players with less sophisticated knowledge. In general, the cost of production varies from $15 to $50, depending on the type of deposit and logistics, which limits the possibilities for sustained price growth.
Another pressing point will be geopolitics. Sanctions and regional conflicts will change the balance of supply and demand. Nevertheless, unless there are serious shocks, the forecast for 2025 indicates that the range of $70-80 per barrel will remain. This is beneficial to all major market participants.
As in the oil sector, the gas market will also experience certain difficulties. For example, the situation observed in the construction of pipelines: it is very expensive, and activity in this area is moderate, even despite the excess of gas in the Permian basin of the United States.
The latest interest rate cut has already started to improve the conditions. Immediately after the decrease, gas prices began to rise, and they will continue the trend. A reduction in the interest rate also entails reducing the cost of loans. Thanks to the influx of cheap money, we can expect the modernisation of existing refineries and the expansion of LNG export terminals.
In 2025, liquefied natural gas (LNG) will play an increasingly important role in ensuring energy security, especially in Europe, which is seeking to diversify its sources of gas supplies. The transition to LNG allows EU countries to reduce their dependence on Russian supplies, providing more stability in the face of unpredictability. For example, recent restrictions on the transit of oil and gas through Ukraine or a ban on the export of Russian LNG have created local fluctuation, which has affected world gas prices.
At the same time, the active development of infrastructure, including LNG terminals and the modernisation of transport systems, contributes to the creation of a global supply network capable of coping with energy crises. LNG not only ensures the strength of supplies in the short term but also becomes an instrument for the long-term strategic restructuring of the natural gas market.
Solar and wind energy are becoming more and more accessible and widely used. In 2025, this trend will continue to take place and even see further development. For example, solar energy is considered the fastest-growing power source in the EU, valued for its affordability and cleanliness. Between 2010 and 2020, the cost of solar power dropped by an impressive 82%, making it the most cost-effective electricity source in many regions across the EU.
However, their integration into the grid remains a serious challenge. Many projects may still need government support to make a profit. Another problem is the lack of infrastructure. The rising demand for electricity driven by increased electrification necessitates the modernisation of network infrastructure. Additionally, it calls for the development of hydrogen technologies to complement traditional renewable energy sources. Lowering the rate will make money cheaper, so the industry will definitely continue to develop due to the influx of funds.
In any situation, even the most unpredictable, diversification remains the foundation of investment decisions. To do so, investors can allocate capital between traditional energy sources, LNG, and renewables. Risk management, including hedging against geopolitical volatility, is also becoming necessary in the unpredictability that we live in. Another area that can be interesting is investments in infrastructure and innovation in the energetic sphere. For example, hydrogen technologies and grid upgrades can be very appealing and offer new opportunities.
The author is head of analytics at Cyprus-based broker Mind Money
