Oversupply Of Oil Will Drop Food and Petrol Prices in Next 2 Years, Says World Bank

The World Bank states that due to the falling oil value, the average price of global commodities like food and metals will go to a five-year low.

The World Bank predicted that a glut in oil output would result in lower food and petrol costs for the next two years, giving hope to consumers that the cost pressures of the last three years would start to subside.

Its analysis found that there will be a downward trend in oil prices for this year, which is due to the increased production, lower demand in China, and shift to sustainable energy. It will continue even if the conflict in the Middle East worsens.

It predicts that the global oil supply will be more than the demand by an average of 1.2m barrels per day(bpd), so Brent crude price will reduce from $80 a barrel to $73 a barrel in 2025 and $72 in 2026.

The World Bank states that due to the falling oil value, the average price of global commodities like food and metals will go to a five-year low.

The global commodity prices will fall by almost 10% between 2024 and 2026. According to the latest commodity markets outlook, the Washinton-based development organization predicted that the global food price will fall (% this year and 4% in 2025 before dropping off.

It added that overall commodity prices will be 30% higher than five years before the 2020 Covid pandemic.

Central banks were worried about rising prices and how it would affect inflation after the report allowed them to reduce interest rates faster than anticipated.

The UK government and other governments who want to increase tax income from the sale of petrol and diesel will also be assured.

There is pressure on UK Chancellor Rachel Reeves to fill the budget deficit by increasing the fuel duty. The previous Conservative administration implemented a temporary duty cut of 5p per liter in 2022, which will be revered by the chancellor so that it could align with the predictions of the Treasury’s economic forecaster, Office for Budget Responsibility.

Reeves will raise fuel duty by more than 5p a liter to increase revenue beyond the prediction of OBR, even if there is opposition from the road user groups.

An oversupply of oil by more than 1.2m bpd was reported by the World Bank only during the pandemic beginning when the economy shut down and the 1998 Asian crisis when the Far East suffered an economic slump.

Since Israel escalated its attacks on Hezbollah in Lebanon, there was a growing concern that violence in the Middle East would cause an increase in oil prices.

Only an extensive conflict like the 2003 Iraq War would cause an increase in oil prices beyond the predictions of the World Bank. The increase would reach $84 a barrel in 2025, 5% more than average in 2024.

The World Bank predicted that there would be an oversupply of oil in 2025 due to low oil demand in China, the largest manufacturer in the world, since 2023, since there was reduced industrial production and an increase in EVs and LNG-powered trucks.

Although the oil cartel Opec maintains the supplies, which includes Saudi Arabia, Kuwait, and Venezuela, a decrease in production will not result in price increases.

Other oil-producing countries affiliated with OPEC will increase their exports to increase their income. It includes Russia, which maintains a significant space capacity of 7m bpd, double the size on the eve of the pandemic in 2019.

The World Bank Group’s deputy chief economist, Ayhan Kose, states that the economy is better than before in handling such an oil shock.

It opens up unique opportunities for policymakers in developing economies by decreasing commodity prices to help monetary policy bring back inflation to its target, and policymakers can retract expensive fossil fuel subsidies.