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I'm Caroline Hebgep and this is Here's Why, where we take one new story and explain it in just a few minutes with our experts here at Bloomberg.

There's a lot of oil supply that's coming back, and so that has brought crude prices lower than they had been for the prior period of time.

And we're heading into a pretty low oil forecast price environment for twenty twenty six, Paul, if we get fifty four dollars West Texas Intermediate, BLAA.

Is going to pay you to fill up that gasoline prices have been declining by base case of crude oils, it still goes to forty.

That's not profound.

It's for the last twenty years.

It's bottom there there.

This is a perfect storm for a bear market.

The question is is how low it goes?

And like you said, you're paying less than three bucks a gallon in New Jersey.

I mean, I think it's a matter of time it gets down to two.

Oil prices are sliding and the world is now on track for its biggest surplus since twenty twenty.

Supply is rising as the industry cartel opek plus on wines cuts and US production hits new records, while demand softens on slower global growth and China's weakening economy.

Meanwhile, the Russia Ukraine War is injecting fresh uncertainty with sanctions, discounts and shifting trade routes are pending where Moscow's crude can flow to.

And while a lower crude price benefits some, it's not good news for everyone.

So here's why lower oil prices create winners and losers.

Julian Lee, our Bloomberg oil strategist, joins me now for more.

Hello, Julian, are oil prices under sustained pressure?

Would you say yes?

At least for a while.

You know, everything comes to an end, and this will come to an end in time as well.

But for now, and by the looks of it, for next year at least, and perhaps into the early part of twenty twenty seven, supply does seem to be running well ahead of demand, and that is going to put prices under downward pressure.

Not everybody sees the world that way.

The producer group sees a different outlook.

They see things much more balanced.

They have a stronger forecast of demand growth and interestingly a weaker outlook for supply as well, But that is very much an outlier of you.

That's not the consensus that you see among people like the International Energy Agency, the US Department of Energy, or indeed most of the big banks.

Interesting, So who benefits in the world then from lower oil prices?

Well, you'd like to think that it would be you and me and the listeners to this podcast who buy fuel and buy goods whose price is affected by transport costs.

But unfortunately it's not that simple.

To take a an example, I mean, President Trump has made it a big part of his re election campaign and his policy to bring down fuel prices, and he's a great one for touting the fall in oil prices, but if you actually look at the numbers, crude oil prices are down by twenty five percent since he was inaugurated.

That ought to be good news, but gasoline prices in the US are down by just three percent, and diesel prices have actually gone up on a national average basis.

And in some ways that's the worst of both worlds because the US oil industry, which is an important part of the US economy, an important part of his base, is suffering from lower prices while consumers aren't yet seeing the benefit.

So the short answer is who sees the benefit at the moment, it's really refiners, those people who buy crude oil, process it and turn it into the product that consumers buy.

So then who loses out if crude prices stay relatively low?

I think there are two big groups that lose out.

The first is the companies that pump oil out of the ground, not so much the exons and the Chevrons and the shells, because they are big, integrated companies.

They operate all the way through the oil supply chain.

They look for oil, they make discoveries, they develop fields, they pump crude oil out of the ground.

But they also own substantial refineries.

So while they make perhaps less money out of getting the crewed out of the ground, they're making more money out of turning that crude into the products that we need, So they are to some extent shielded.

The companies who extract oil from the ground and sell it as creued they're the ones who are really hit.

So these are typically a lot of the shale producers in US, smaller independent, what we would call upstream focused companies, those who drill and produce crude oil, they will suffer.

The other group that will suffer are the petro states, the countries whose economies depend on oil prices for national income and for government expenditure, so Saudi Arabia, Iraq, Kuwait to some extent, the United Arab Emirates, although they're diversified a little bit.

And it's those countries who will see bigger budget deficits.

They'll have to cut spending, they'll have to borrow.

Those really are I think going to be the two big groups of losers.

What about Russia then, in terms of its oil output, how much does that affect global prices.

I don't think Russia has had a huge impact on prices globally.

If you look at what's happened with Russian oil production since its troops invaded, you can in early twenty twenty two, its oil exports have stayed relatively stable.

And this was quite a deliberate policy on the part of the US and European governments in the way that they have developed sanctions aimed at the Russian economy.

They've been very much an attempt to reduce the flow of dollars back to the Kremlin without hitting the amount of oil that's coming out, so they've tried to hit the revenue, not the volume, and that's been relatively successful.

What we have seen is a big shift in the flow of Russian oil, most of which used to go a very short distance into Europe.

It's now going much longer distances to India and to China, so that increases the costs for Russia without disrupting the flow.

If we do get a piece deal and an end to the Russia Ukraine War, it will depend how those flows ease up, whether European countries start to buy Russian oil again, but I don't think that it will significantly increase the amount of Russian oil that is available on the market.

The one thing that might change is the amount of diesel fuel that Russia exports, because it's quite an important supplier of diesel, and if the sanctions and the trade bands around Russian diesel ease, then we might see diesel prices come off a bit.

And of course we would hope that with an end of the war we would see an end to attacks on Russian refineries and oil export infrastructure.

What about lower oil prices when it comes to helping or hindering the energy transition.

If you'd asked me this question five years ago, maybe ten years ago, when the energy transition was really beginning to get off the ground, I would have said that obviously, lower oil prices make that more difficult.

There's much less of an economic incentive to develop what were at the time more expensive alternative sources of energy.

But I think things have moved on quite a bit.

I think there is a groundswell behind the energy transition.

It may not be or it's almost certainly not going fast enough to meet climate goals, but I think now there is a momentum behind it.

And even in the US, where the sort of political support has shifted away, I think you're still seeing underlying economic support for it.

The transition makes sense economically now for many countries.

It certainly makes sense from an energy security perspective, at least for power generation.

So I think that, yes, it creates an environment where certainly, I think in developing countries, if you see the follow through from lower crude oil prices into product prices, there is less of an economic incentive for the transition, but I think there are sufficient other incentives there that the transition will continue.

My thanks to Julian Lee are Bloomberg Oil Strategist, and for more explanations like this one from our team of three thousand journalists and analysts around the world, go to bloomberg dot com slash explainers.

I'm Caroline Hepkeet.

This is his why.

I'll be back next week with more.

Thanks for listening.