Traditional fossil fuel markets face an expected oversupply in 2025 because multiple factors like technological advancements and geopolitical changes, combined with new environmental policies, are driving a transformation in the energy sector.
The rapid expansion of solar power, wind energy and battery storage systems shows no signs of slowing down. Even though geopolitical uncertainty exists, investments in these sectors will reach their expected speed. The momentum for clean energy expansion will increase due to government incentives, cost reductions, and rising demand. Countries participating in the sixth technological revolution aim to increase their electricity consumption and reduce their dependence on oil. The change arises from urgent environmental issues combined with the overall progression of energy systems.
Investors face both advantages and disadvantages in this fast-evolving environment. The oversupply situation creates worries for many but skilled investors can use emerging energy market trends to their advantage. Transportation electrification stands as a key force propelling industry transformation. The increasing demand for electric vehicles will boost the need for batteries and charging infrastructure.
Oil to preserve stability bolstered by the US Administration
The US Energy Information Administration’s (EIA) latest forecasts indicate Brent crude oil prices will hit $74/bbl in 2025 due to an oversupply situation, combined with weak demand. According to the latest EIA data from mid-February 2025, storage outflows from Cushing surpassed expectations at 196Bcf, while the previous period saw a 100Bcf withdrawal, further straining supply capacities.
Oil’s importance in industrial and consumer applications is gradually declining. Despite its diminishing industrial importance, oil remains essential as both a commodity and a financial tool that maintains global financial stability. Major nations are increasingly adopting renewable energy sources because they provide economic benefits and environmental friendliness.
The increase in oil extraction costs is one of the most challenging aspects of the business, especially within the context of rising inflation and more intricate oil production details. These expenses are compressing profit margins and, as a result, deterring new competition from entering the market.
On the other side of the spectrum, new methods of oil drilling, including shale extraction, give producers that operate at low margins an undue advantage and help them undermine their competitors. Generally, production costs range from $15 to $50 depending on the type of oil deposit and logistics, which caps the chance and the opportunity of remarkable price surges.
The supply and demand balance will also be influenced greatly by geopolitical factors. Sanctions and regional conflicts continue to be some of the most important disturbances to the balance in the oil market. Still, the average expectation for 2025 is that oil prices will continue to stay within $70-$80 per barrel, which all market participants would welcome.
Glorious comeback of nuclear power in 2025
We expect nuclear power plants to be influenced in a major way owing to the increased demand for electricity because of data centres and the rising popularity of Bitcoin mining in the world. I agree that nuclear energy is a reliable source to meet many demanding requirements, helping in averting power outages.
New innovations are taking place in the nuclear industry with the advent of new advanced reactors and their designs alongside better technology. An example of this is Small Modular Reactors (SMRs) that are designed for enhanced efficiency, construction cost savings and, more importantly, safety.
Building new nuclear power plants requires a significant upfront investment which serves as a deterrent when trying to gain entry. However, the subversive operational expenses over time are offset against the competitive offers received from this form of the power plant as compared to the more traditional and established forms of generating energy.
Natural gas is as hot a commodity as ever, but in what form?
The natural gas market has many problems closely related to oil, which is logical because they are relevant to each other. There is a problem with the high cost of construction and moderate economics in this region, although gas reserves are sufficiently available in the Permian basin of the US.
In the last couple of years, the changes in central bank interest rate policy produced positive results for the commodities market. Due to the activities of the Federal Reserve, gas prices have started to bottom out. The cuts in interest rates lower the expense of credit, which allows for refining upgrades as well as the previously stalled expansion of liquified natural gas (LNG) export terminals.
In 2025, LNG will take a central role in achieving enhanced energy security, especially within Europe, which has evidently entered a period of heightened political pressure to diversify supply sources. The ongoing refocus towards LNG allows the European Union to reduce its reliance on Russia. Like renewable solar and wind, LNG can serve as a dependable backup source of energy, helping grid stability by providing energy when supply is needed. The rise of AI and the data centres that support AI are massively increasing the demand for high-power-consumption electrical equipment. LNG is a very important part of supplying the energy needed for this growth.
Also read: ‘Love it or hate it, Drax is a strategic national asset’
Furthermore, the ongoing development of LNG terminals and transportation systems is instrumental in establishing global supplies.
Renewable energy gaining traction
It’s clear that renewable energy is not just a trend but a fundamental shift in the global energy landscape. Solar and wind energy are increasingly becoming accessible and widely promoted. This trend is expected to persist throughout 2025 and beyond. Solar energy is recognised as the fastest-growing power source in many world regions, including the EU.
Between 2010 and 2020, the cost of solar power saw a remarkable decline of 82%, establishing it as the most cost-effective electricity option in various regions across the EU. In 2025, the average solar installation cost is about $19,000, or $3 per watt, before any incentives are factored in. Solar PV is experiencing rapid growth, driven by falling costs and increasing efficiency.
However, the existing infrastructure is often inadequate for such a major upheaval, and it clearly requires infrastructural changes. There is also a pressing urge to develop semi-abandoned hydrogen technologies.
How can investors get aligned with the energy market’s new normal?
Amid mounting global uncertainty, the energy sector becomes particularly susceptible to many headwinds. Therefore, diversification continues to be a cornerstone of investment strategy. Investors should consider diversifying their investment capital across traditional energy sources, LNG and renewable energy.
In addition, effective risk management is becoming essential to navigate the geopolitical volatility that characterises our current environment. Infrastructure investments and advancements in energy innovation remain attractive opportunities, but require more scrutiny. For instance, hydrogen-related technologies and enhancements in power grid systems are worth exploring as they may open up new avenues for growth.
