Olive oil price surge could worsen as Europe heat wave continues

Inflation is easing in most developed countries, helped by falling demand, weaker US dollar, and increased production. Prices of staple agricultural commodities like wheat, corn, and soybeans have also retreated this year. Olive oil prices, though, are hitting their record highs. 

Data shows that European olive oil prices have jumped from 4 euros in September last year to 7 euros today. In the UK, data by the Office of National Statistics (ONS) revealed that a 500ml bottle of olive oil was averaging 6.16 pounds in May, a 47% increase from a year earlier.

European drought is ongoing

Olive oil prices have jumped sharply this year as investors factor in elevated demand and low supplies. A major reason for this is that key olive oil-producing countries are going through a major drought. Some of the top olive oil producers are Spain, Italy, Morocco, Turkey, and Greece.

Data by the European Drought Observatory (EDO) showed that half of the European Union was going through a drought. Temperatures in Italy, Greece, and Turkey surged to over 40 degrees this week. This is notable since the EU produces about two-thirds of the world’s olive oil.

Rain has become rare in most of the EU this year. Spain and Portugal experienced some rain recently that was not enough to offset the rising temperatures.

Therefore, there are fears that olive oil supplies could drop this year. Recent data shows that European producers are reducing their stocks. These stocks fell from 265k metric tons in May to 265k tons in June.

Olive oil production is expected to continue falling this year. Experts believe that Spain will produced 620k tons of olive oil in the last season after harvesting 1.5 million a year earlier. In a note, an aanalyst at Mintec said:

“We’ve had a very poor crop, prices have never been this high, and concerns extend beyond the season we’ve just had.”

Olive oil prices could remain high

UK olive oil prices

Commodity prices are usually impacted by demand and supply. Demand for olive oil is usually driven by the world’s population and economic growth. Recent data shows that many key countries like the US and China are recovering after slumping during the pandemic.

At the same time, the world’s population has risen from 7 billion a few years ago to over 1 billion. This means that demand will continue rising. 

On the other hand, supplies are suffering from the impact of climate change. Data showed that last week was the hottest week ever recorded. And scientists believe that this year will see record temperatures.

These heatwaves are happening in some of the biggest olive oil-producing countries such as those in Europe. Therefore, a combination of elevated demand and low supplies mean that olive oil prices could jump to over 10 euros this year.