90 Oxygen

Petrol and food prices will fall thanks to oil glut, says World Bank

Published on
Petrol and food prices will fall thanks to oil glut, says World Bank
  • The World Bank forecasts a decline in petrol and food prices over the next few years due to an oil glut, caused by heightened oil production, decreased demand from China, and a global transition to clean energy.
  • The reduction in oil prices positively impacts food costs as lower oil prices decrease agricultural and transportation costs, which the World Bank predicts will lower global food prices by nearly 10% between 2024 and 2026.
  • The oil glut creates opportunities for policymakers to manage inflation and reduce fossil fuel subsidies, while OPEC+ retains ample spare capacity to address potential demand increases without significantly boosting production levels.

Culture every morning

Always be up-to-date. Get the freshest on culture, every morning to your inbox.

In a significant development that could bring much-needed relief to consumers, the World Bank has announced that petrol and food prices are expected to decline over the next couple of years due to an oil glut. This surplus in oil production, coupled with falling demand from China and a shift towards clean energy, promises to mitigate the financial strains experienced over the past few years.

What is an Oil Glut?

An oil glut occurs when the global supply of crude oil exceeds demand. This situation can happen due to various factors, including increased production, reduced consumption, or a combination of both. The current oil glut is attributed to several key factors:

  • Higher Oil Production: Many countries have ramped up their oil production in recent years, leading to a significant increase in global supply.
  • Falling Demand from China: China, the world's largest oil consumer, has seen a decline in its oil demand due to lower industrial production and a shift towards electric vehicles.
  • Clean Energy Transition: The world is transitioning towards cleaner forms of energy such as solar and wind power, which reduces the reliance on fossil fuels and consequently decreases the demand for oil.

Impact on Petrol Prices

The oversupply of oil has led to a downward trend in petrol prices. Brent crude oil prices, which are often used as a benchmark, have dropped from an average of $80 per barrel this year to $73 in 2025, and are expected to fall further to $72 in 2026. This reduction in crude oil prices directly benefits consumers by making petrol cheaper. For instance, a drop in Brent crude oil prices by $2 per barrel can lead to a reduction of around $0.10 per liter in petrol prices.

Examples of Price Drops

Historically, a decrease in crude oil prices has had a ripple effect on petrol prices. During the early days of the pandemic, when many economies were in lockdown, the global oil supply outstripped demand by over 1.2 million barrels per day. This surplus led to a sharp decline in petrol prices worldwide. Similarly, during the 1998 Asian financial crisis, a significant increase in oil production and reduced demand resulted in lower petrol prices globally.

Impact on Food Prices

The oil glut also has a positive impact on food prices. Food production often relies on oil for farming equipment, transportation, and packaging. When oil prices drop, the costs associated with these activities decrease, leading to lower food prices. The World Bank projects that global food prices will fall by nearly 10% between 2024 and 2026. Specifically, food prices are expected to decrease by 9% in 2024, followed by an additional 4% drop in 2025 before stabilizing.

Why Lower Food Prices Matter

Lower food prices are crucial for households, especially those with limited financial resources. A reduction in food prices can help alleviate poverty and improve food security. Additionally, lower food prices can help central banks control inflation more effectively. As global headline inflation is expected to fall to 3.5% next year, from its peak of 9.4% in 2022, these lower food prices will play a significant role in achieving this target.

Global Economic Repercussions

The oil glut and the subsequent drop in commodity prices are expected to have significant repercussions for the global economy. Central banks, which have been wary of inflationary pressures, can now reduce interest rates more swiftly than previously anticipated. This move can stimulate economic growth, as lower interest rates make borrowing cheaper and encourage investment.

Opportunities for Policymakers

The situation presents unique opportunities for policymakers in developing nations. Declining commodity prices can effectively support monetary policy to bring inflation back in line with targets. Additionally, policymakers have a chance to reduce costly fossil fuel subsidies, which can help divert funds towards more sustainable and equitable projects.

OPEC's Response

The Organization of the Petroleum Exporting Countries (OPEC), which includes nations like Saudi Arabia, Kuwait, and Venezuela, has maintained its production levels despite the downturn. However, any cuts in output are unlikely to significantly elevate prices. Other oil-producing countries, some affiliated with OPEC through the OPEC+ alliance, are expected to increase exports to enhance their revenue streams.

Spare Capacity

OPEC+ retains considerable spare capacity of about 7 million barrels per day, nearly double the levels seen just before the pandemic in 2019. This surplus capacity means that even if global demand increases, OPEC+ can still meet that demand without having to significantly raise production levels.

Conclusion

The oil glut, coupled with falling demand from China and a shift towards clean energy, presents a significant opportunity for consumers to benefit from lower petrol and food prices. The World Bank's projections indicate that this downward trend in oil prices will continue over the next couple of years, providing relief to households worldwide. While the situation remains dynamic, with potential escalations in Middle Eastern conflicts potentially affecting oil prices, the current outlook suggests a positive trajectory for global commodity markets. As policymakers and central banks navigate this new economic landscape, they must remain vigilant but also seize the opportunities presented by declining commodity prices to foster sustainable economic growth. https://www.thenationalnews.com/business/2024/10/29/oil-glut-could-limit-impact-of-middle-east-conflict-on-crude-prices-world-bank-says/ https://www.theguardian.com/business/2024/oct/29/petrol-food-prices-oil-glut-world-bank-china