In a world where crucial resources — workers, electricity, housing and more — are in short supply, the globe is expected to have an abundance of at least one commodity: oil.
Why it matters: This new reality might keep a lid on consumer energy prices even as geopolitical strife intensifies. It could also wreak havoc on the longstanding economics that underpin oil production.
The big picture: New forecasts from the World Bank show an oil glut next year with a supply-demand gap that’s been this large only twice before. A collision of trends explains why.
Green transition: Once-insatiable appetite for oil is muted as more consumers begin to pivot from gas-powered cars.
- In China, electric and hybrid vehicles made up half of monthly car sales over the summer for the first time.
- Government subsidies make China-produced EVs cheap and more appealing to consumers (though other countries are making them pricier to import).
Slower growth: The global economy is not the growth machine it once was. That blunts oil demand.
- Growth in five years is expected to be 3.1%, the lowest in decades, according to the International Monetary Fund.
- That reflects weak growth outlooks in Latin America and Europe and, perhaps most importantly, China, where a historic growth slowdown is already underway.
U.S. as a top producer: In the past decade, America has emerged as a major oil producer — helping add to global supply. Former President Trump, if elected, has promised to increase oil production further.
- The U.S. produces more crude oil than any nation ever has — last year was the sixth straight period that has been the case, according to government data. Guyana is also a newly significant contributor.
- OPEC+, the cartel of oil-producing nations, does not plan to start unwinding production cuts until December.
By the numbers: Next year, global oil production is expected to exceed demand by an average of 1.2 million barrels per day, according to the World Bank’s annual Commodity Markets outlook. That supply-demand mismatch has rarely been exceeded.
- The last time was in 2020 when the world entered pandemic lockdown and economic activity — and, in turn, demand for oil — ground to a halt.
- Before that, there was the oil price crisis of 1998 when demand stagnated on the back of crises around the world.
Yes, but: Conflict in the Middle East has contributed to recent oil price volatility.
- The World Bank modeled what might happen if conflict there escalated and reduced the global oil supply by 2 million barrels per day by the end of 2024 — similar to the disruption seen during the Iraq War in 2003.
- In that case, the researchers say oil prices might initially surge, but that spike might be short-lived: Other countries unaffected by the conflict would step in and boost production.
The bottom line: «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 said in a release.
- The oversupply dynamic «opens up some rare opportunities for policymakers,» Kose adds, noting that lower commodity prices aid central bank efforts to cool inflation.