EurOil: Global oil supply to see major glut next year, says World Bank

Global commodity prices are on track to slump to a five-year low next year, with an oil glut emerging so large that it will largely negate the impact of the Israel-Palestine war escalating into a regional Middle Eastern conflict, the World Bank said in its latest commodities market outlook on October 29. This said, commodity prices will still stay 30% higher than in the five years prior to the COVID-19 pandemic, it added.

Global oil supply will surpass demand by 1.2mn barrels per day (bpd) on average next year, the World Bank forecasted. Bigger gluts have only been seen two times before – during pandemic-related shutdowns in 2020 and the 1998 oil price collapse, the bank said. 

The World Bank pointed to flatlining demand in China since last year as a result of an industrial slowdown and increased sales of electric vehicles (EVs) and trucks powered by LNG. Several countries outside the OPEC+ alliance are also expected to ramp up production, it said. The cartel group itself maintains around 7mn bpd of spare production capacity, or twice as much as it did before the pandemic. 

The bank sees global commodity prices falling by almost 10% from 2024 up to 2026, with food prices dropping 9% this year and 4% in 2025 before stabilising. Energy prices should fall by 6% in 2025 and 2% in 2026. The expected decline in food and energy prices should make it easier for central banks to keep a lid on inflation, but escalated conflicts would undermine this by disrupting energy supply, the bank said.

“Falling commodity prices and better supply conditions can provide a buffer against geopolitical shocks,” World Bank Chief Economist Indermit Gill said. “But they will do little to alleviate the pain of high food prices in developing countries where food-price inflation is double the norm in advanced economies. High prices, conflict, extreme weather, and other shocks have made more than 725mn people food insecure in 2024.” 

Conflict in the Middle East has driven oil price volatility this year, amid fears that oil and gas infrastructure could be targeted. If the conflict does not escalate, the average price of Brent should drop to a four-year low of $73 in 2025, from $80 per barrel this year.

In the event of an escalation that slashed global oil supply by 2% or 2mn bpd by the end of this year, Brent would initially spike at $92 per barrel, the bank said. However, the impact would be short-lived, as other producers could release more barrels onto the market, utilising their ample spare capacity. In this scenario, the oil price would average $85 per barrel in 2025, which is still 15% above the bank’s baseline forecast but only 5% higher than the 2024 average.

“The good news is that the global economy appears to be in much better shape than before to cope with a significant oil shock,” World Bank Deputy Chief Economist Ayhan Kose commented. “That opens up some rare opportunities for policymakers in developing economies: first, declining commodity prices can provide a helpful complement to monetary policy to bring inflation back to targets; second, policymakers have a window to wind back costly fossil-fuel subsidies.”

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