Oil prices have bounced back, climbing over 3% in just a few days. Crude oil has climbed to $80 early on in 2025, before falling 25% down to below $60 per barrel only a few days ago.
Charts do not tell the full picture as oil prices are rarely this volatile. The story is more than just supply and demand.
Growth forecasts are changing, sanctions are being imposed, large countries are revamping their import strategies thanks to the US President’s uncertain tariff policy.
Here’s what investors should pay attention to in order to understand where the price of oil is heading next.
Are sanctions on Iran the real story?
The most immediate driver of the recent oil rally is a new round of US sanctions targeting Iranian oil exports.
On April 22, the US sanctioned Seyed Asadoollah Emamjomeh and his shipping network, accused of moving hundreds of millions of dollars’ worth of Iranian crude and LPG. This adds more pressure on Tehran as nuclear talks with Washington appear to be stalling.
Markets took this seriously. Brent crude jumped to $68.39 a barrel, while WTI reached $64.64, both up over 3% from earlier in the week. Traders are now preparing for the possibility that Iranian oil exports, which had already fallen sharply in recent years, could be pushed even closer to zero.
This risk is significant. Iran typically exports around 1.2 to 1.5 million barrels per day when restrictions loosen. A drop toward zero would tighten the global supply balance in an already sensitive market.
But so far, this is still a short-term price shock. What matters next is whether the US escalates the sanctions further, and whether Tehran finds new ways to work around them.
China’s pivot is shaking up the market
While the US cuts off Iran, China is redrawing its own energy map. In recent weeks, Chinese refiners have slashed US crude imports by roughly 90%, dropping from 29 million barrels per month to just 3 million.
Instead, they’re turning to Canada, importing a record 7.3 million barrels via the Trans Mountain Pipeline in March.
Source: Bloomberg
Besides political, this move is also practical. Canadian oil is cheaper than many Middle Eastern grades and matches the technical needs of Chinese refineries. The TMX expansion, completed less than a year ago, gave Canada direct access to Asia through the Pacific coast.
This shift has two implications. First, it shows how infrastructure like TMX can rapidly reshape trade flows.
Second, it proves China is moving away from dependence on any single supplier. That makes oil trade less predictable and raises new questions about how US policy choices are affecting the global market.
Are falling U.S. inventories a bullish signal?
US crude stockpiles fell by 4.6 million barrels last week, according to American Petroleum Institute data. That’s nearly six times the average analyst forecast of 800,000. The drop surprised markets and helped support the ongoing price rally.
It’s not clear yet what caused the drawdown. It could be due to strong refinery demand or a temporary slowdown in domestic production. It might also mean higher exports, as overseas buyers take advantage of pricing spreads. For example, the FT reports that airlines like Ryanair, are already taking advantage of the recent drop in oil prices to stock up for future requirements.
But in any case, it reinforces the idea that supply is tightening, at least for now.
The Energy Information Administration (EIA) will confirm official inventory data soon, and traders will watch closely. If the trend continues, it could point to more fundamental support for oil prices rather than just geopolitical reactions.
Is demand really at risk or are markets overreacting?
This is where things get more complicated. Despite rising prices this week, broader demand concerns are growing.
While China diversifies its imports, Japan is going in the opposite direction. Crude oil imports into Japan are in structural decline, driven by weak domestic demand, an aging population, and a shift toward low-carbon fuels.
The International Monetary Fund just cut its global growth outlook again. US tariffs are weighing on global trade. China’s economy is slowing, and Europe remains under pressure.
Even Russia’s economy ministry lowered its Brent crude forecast for 2025 by 17%. That’s a big statement from a major oil exporter.
On top of that, President Trump has been pressuring the Federal Reserve to cut interest rates while at the same time suggesting he might lower tariffs on Chinese goods. Treasury Secretary Scott Bessent says he expects trade tensions with China to ease eventually, but admits negotiations haven’t started and will take time.
The bottom line is this: if demand weakens globally, no amount of supply pressure will sustain higher prices for long. Oil is not just a commodity; it’s a macro asset. And investors are pricing in a world with less economic momentum.
What should investors really be watching?
Short-term price movements are being driven by headlines, but smart investors should focus on signals, not noise.
One clear signal is that geopolitical risks are rising again. Iran sanctions, Middle East uncertainty, and a global change in energy alliances all point to a less stable supply outlook. But supply isn’t the full story.
The more powerful forces may come from the demand side. Global growth is slowing, and high energy prices themselves can act as a brake on consumption. A top-five economy like Japan consuming less oil due to its population and economic structure is indicating a trend that cannot be ignored.
The US-China trade dynamic remains unresolved. Central banks are still hesitant to commit to easing. And if equity markets lose steam again, oil could follow.
In the background, activist investors like Elliott Management are also pressuring oil majors like BP to ditch renewables and double down on oil and gas. That shows capital may be shifting back toward traditional hydrocarbons. Another sign that companies see short-term upside in fossil fuels. But this could backfire if oil demand doesn’t hold up.
Investors looking at oil prices should zoom out and look ahead, not just at what’s happening, but what might happen next. The risk isn’t just volatility. It’s being caught off guard.
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