Chronic Oil Volatility Becomes Oil’s New Normal
As the IEA is about to revise its peak oil demand scenario radically, the global oil market is undergoing a shift that looks like it’s going to be permanent. Demand growth is being driven by Asia. Supply growth is mostly taking place in the Americas. Meanwhile, politics is playing a growing role in oil flow.
The demand and supply trends were highlighted this week by Reuters energy commentator Clyde Russell, who wrote that most of the world’s oil supply growth was coming from non-OPEC countries in North and South America, notably Canada, Guyana, Brazil, and Argentina, as well as Suriname. The United States also contributed to this growth but its contribution was about to start declining while the other countries’ contributions were set to remain strong, as suggested by an Argus report that Russell cited in his column.
Indeed, per the Argus forecast, the Americas are set to account for 85% of supply growth between 2024 and 2030 but there is an important detail: that 85% is the portion of non-OPEC supply growth, not total global growth. In other words, OPEC could also expand its production alongside the Americas should there be a need for that. In other words, there is no case of the Americas tipping the global oil market into a lower dependence on OPEC and its OPEC+ partners—that bloc is still responsible for close to two-thirds of global oil supply.
Yet the additional production from the Americas would come in handy for the demand hubs in Asia, led by India, where demand for crude may add as much as 2 million bpd in the next six years, according to Argus. According to Trafigura, as soon as this year, India will overtake China in terms of oil demand growth, excluding strategic stockpiling, of which China has been doing a lot since the start of 2025.
Outside India, demand for oil in Asia is set for a lot more lukewarm growth, at an estimated 600,000 barrels daily, per Argus. That would be weaker growth than even the Middle East, where Argus sees demand for oil rising by 1 million barrels daily between 2024 and 2030. The rest of the world will see equally modest demand growth, at 600,000 bpd in Africa and by 500,000 bpd in Latin America.
It is worth bearing in mind that these are projections only. Demand trends have surprised before and they may surprise again, as the International Energy Agency knows from its own recent experience that showed it might not be the wisest move to assume stated climate policies will turn into actual, implemented policies, not to mention market forces affecting hopes and dreams about the electrification of transport. Whatever the forecast and projections, oil demand trends would depend most on economic developments in the regional oil markets, which are always subject to change from the status quo, which is where the political aspect of oil trade comes in.
The European Union and Russia are the most recent and most obvious examples of how politics can redirect energy flows. As the European Union declared it would phase out imports of Russian energy, said Russian energy headed east, with the redirection culminating in the recent agreement to build the Power of Siberia 2 gas pipeline that would see Russia export to China the same amount of natural gas it was going to export to Germany via the twin Nord Stream pipelines.
Russia’s oil is also heading east, and most notably into India, the future global demand driver. As we have recently seen, this has caused trouble for India because the U.S. president disapproves of this state of affairs and believes that harming Russian oil exports would lead to a swifter end to the hostilities in Ukraine. Per Reuters’ Russell, this is an example of how oil markets become tangled with political developments, with India in this case having to choose between doing business with the United States or with Russia.
Indeed, earlier today the Financial Times reported that President Trump was going to urge G7 to impose tariffs on India and China in an attempt to sap their appetite for Russian crude, after the European Union turned out to be reluctant to use tariffs for this purpose, concerned such a move could boomerang. It appears to be in favor of sanctions as a means of asserting its will with the Asian powerhouses, with the FT report noting that the leadership in Brussels was discussing sanctions on China for buying Russian crude and natural gas.
Whether this could turn into a blueprint for future U.S. administrations remains to be seen, but it is clear that politics and oil trade are becoming increasingly closely interlinked, which would inevitably add a dose of further volatility to oil markets, and that new volatility is going to stay with those markets.
