Dear Colleagues,
Commodity markets
have experienced substantial volatility, in part due to shifting
assessments of geopolitical risks and weak economic activity.
Assuming
no major escalation of geopolitical tensions, prices
are expected to decrease by 5 percent in 2025 and 2 percent in 2026.
The projected declines are led by oil and food prices but tempered by
price increases for natural gas and a stable outlook for metals and
agricultural raw materials.
The possibility of escalating
conflict in the Middle East represents a substantial near-term upside
risk to energy prices, with potential knock-on consequences for other
commodities.
However, over the forecast horizon, longer-term
dynamics—including decelerating global oil demand, diversifying
oil production, and ample oil supply capacity—suggest sizable downside
risks to oil prices, especially if OPEC+ unwinds its latest production
cuts.
I summarize the main messages of the report below (to download the
full report, please use this
link). All charts/data featured in the report and the Pink Sheet of monthly prices are available on our
Commodity Markets web page.(...)
- Commodity price forecasts.
After softening by 3
percent in 2024, the World Bank’s commodity price index is expected to
retreat by a further 5 percent in 2025 and 2 percent in 2026. This would
lead aggregate commodity prices to their lowest
level since 2020, albeit still nearly 30 percent above the 2015-19
average. The energy price index is projected to fall by 6 percent in
2024 (y/y), followed by further declines of 6 percent in 2025 and 2
percent in 2026. Next year, the global oil supply is
expected to exceed demand by an average of 1.2 million barrels per day,
a glut that has been exceeded only twice before—during the
pandemic-related shutdowns in 2020 and the 1998 oil-price collapse.
Assuming conflict in the Middle East does not intensify,
the annual average price of Brent crude is expected to fall to a
four-year low of $73 in 2025, down from $80 a barrel this year. The
metals price index is expected to drift slightly lower over 2025-26.
Agricultural prices, after a slight increase in 2024,
are projected to fall by 4 percent in 2025, largely due to increasing
supplies amid favorable weather conditions, with little change
anticipated in 2026. Food commodity prices are on course to decline by 9
percent in 2024, then forecast to soften by a further
4 percent next year before leveling off in 2026.
- Implications for inflation.
As past and anticipated declines in energy and food commodity prices
pass through to consumer
prices—albeit to varying degrees across different products and
regions—they should continue to put downward pressure on headline
inflation, particularly its non-core components. Lower commodity prices
should, therefore, help central banks bring headline inflation
back toward targets, especially in emerging market and developing
economies where food and energy form relatively large components of
consumption baskets. Furthermore, given that energy and food prices tend
to be particularly salient to consumers, the projected
easing of commodity prices could also temper inflation expectations,
which could feed back into reduced core inflation pressures.
- Risks.
In the near term, the
possibility of escalating conflict in the Middle East poses substantial
upside risks to energy prices. A conflict-related reduction in the
region’s energy exports could drive oil and gas prices
higher, with knock-on consequences for other commodities. Other upside
risks to commodity prices include stronger-than-anticipated economic
growth, especially if related to policy stimulus in China, and potential
supply disruptions due to climate change-related
extreme weather. Even so, over the forecast horizon, risks to the
aggregate commodity price forecast are tilted slightly to the downside.
This reflects a judgment that the steady unwinding of OPEC+ production
cuts—in line with announced policy—could generate
abundant oil supply, significantly reducing oil prices and lowering
commodity prices overall. In addition, weaker-than-expected global
industrial activity could weigh on energy and metal prices.
- Commodity Price Synchronization: A New Era?
Over the past five
decades, commodity markets have experienced periods of heightened price
synchronization, particularly during times of global economic stress,
such as the pandemic-induced recession and the global
financial crisis. The record pace at which prices rebounded from
pandemic lows in April 2020 gave way to broad-based declines starting in
March 2022. Unlike the rebound after the global financial crisis, which
was primarily driven by economic recovery and
strong growth in emerging market and developing countries, the recent
period has been marked by a series of disparate, commodity-specific
shocks that have come from such sources as increased conflict in key
commodity-producing regions and severe weather events.
These shocks drove inflation higher and adversely affected global
economic activity. In recent months, the commodity market effects of
these shocks have largely subsided, leading to greater dispersion in
price movements across commodities. However, the risk
of synchronized price increases, due to an escalation in geopolitical
tensions, remains significant.
PS: For our other periodical products, please visit:
Global Economic Prospects and
Global Monthly. For our latest assessment of the causes of chronic fiscal weakness in the poorest economies, see
Fiscal Vulnerabilities in Low-Income Countries. For a comprehensive look at the opportunities and risks confronting 75 countries eligible for grants and zero
to low-interest loans from the World Bank’s International Development Association (IDA), see
The Great Reversal. For our recent study on long-term growth, see
Falling Long-Term Growth Prospects. For our databases of potential growth and inflation, see
Potential Growth: A Global Database and
One-Stop Source: A Global Database of Inflation. For our work on debt challenges, see
Global Waves of Debt: Causes and Consequences and
A Cross-Country Database of Fiscal Space. For our analytical work on topical policy issues, please visit
Policy Research Working Papers.
M. Ayhan Kose Deputy Chief Economist and Director of Prospects Group World Bank
T +1 (202) 473-8350
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