The world Bank revised its forecasts for commodity prices downwards amid the slowdown in global economic growth and continuing oversupply.
It is stated in the report “Prospects for commodity markets”.
It is expected that the sharp decline in prices for energy and metals in 2019, followed by a further drop next year given the projected deterioration in the growth dynamics of the world economy, which would entail a demand reduction.
“For exporters, the decline in demand for commodities is a problem, and for importers the opportunity. As soon as they switch from one type of raw material to other due to fluctuations in prices and technical progress, of special importance is the production and consumption of these resources in a sustainable way,” said Vice-President of the world Bank group on issues of equitable growth, Finance and institutions Ceyla Pazarbasioglu.
According to the forecast of the world Bank, the average oil will cost $60 per barrel this year and $58 per barrel in 2020. In April of the assessment were, respectively, $66 and $65 per barrel.
“Reflecting the slowdown in global economic growth, oil consumption is now expected to grow far slower than previously forecast, next year will increase only slightly. From the point of view of forecasts of oil prices the most important risk factor is more sharp in comparison with the expectations of the sinking of the world economy”, – the document says.
More broadly, energy prices – including natural gas and coal in 2019 is expected to average almost 15% below last year’s level and will continue to decline in 2020.
“Metals prices are forecast to fall 5% this year and will continue to decline next year because the reduction in global demand greatly affects the market. Precious metals have showed this year a sharp increase, and it is expected that in 2020, the positive trend continues – it will be a reaction to the increased uncertainty in the world and accommodative monetary policy,” – said the WB.
Agricultural products, according to analysts of Bank, this year cheaper, but the prices stabiliziruemost in 2020. Overcoming tensions in trade relations could stimulate the growth of prices for some agricultural products, e.g. soya-beans and grains, and reducing the cost of energy would reduce fuel costs and fertilizer prices, resulting in cheaper would be energy-intensive crops, particularly oilseeds.
In the report the Bank also analyzes the factors that motivate consumers to replace one raw material to another, for example, coal, natural gas, and plastic – paper. The driving forces of such substitution, technical progress and change of prices for raw materials. This phenomenon illustrates what risks for long term growth of the economy can lead to excessive dependence of some countries on exports of a limited group of commodities.
“Dependence on exports of a limited number of commodities leads to the vulnerability of developing countries – exporters of raw materials, as strong demand and higher prices can stimulate the innovation and the substitution of other raw materials”, – explained the Director of the study group on economic prospects, the world Bank Ayhan Kose.
A special section of the report of the WB on the impact of the incident on September 14 attacks on oil installations in Saudi Arabia. By historical standards, the market reaction was short-lived, as production volumes were able to quickly recover, diversification of supply sources of oil, including shale oil, is constantly expanding, and demand is weakening. However, these events recalled that the global oil market remains extremely dependent on a few vulnerable to failures of “bottlenecks” in infrastructure and transportation.