Oil prices are forecast to average US$65 a barrel over 2018, up from an average of US$53 a barrel in 2017, on strong demand from consumers and restraint by oil producers, the World Bank said in a recent report.
Metal prices are also expected to rise nine percent this year, also on a pickup in demand and supply constraints.
Prices for energy commodities – which include oil, natural gas and coal, are forecast to jump 20 percent in 2018, a 16 percentage point upward revision from October’s outlook, the World Bank said in its Commodity Markets Outlook.
The metals index is expected to rise as a nine percent drop in iron ore prices is offset by increases in all base metals prices, led by nickel, which is forecast to rise 30 percent.
Agricultural commodities, including food commodities and raw materials, are anticipated to see a price rise of over two percent this year on diminished planting prospects. Weather disruptions are expected to be minimal.
“Accelerating global growth and rising demand are important factors behind broad-based price increases for most commodities and the forecast of higher commodities prices ahead,” said Shantayanan Devarajan, World Bank Senior Director for Development Economics and acting Chief Economist.
“At the same time, policy actions currently under discussion add uncertainty to the outlook.”
John Baffes, Senior Economist and lead author of the Commodity Markets Outlook said oil prices have more than doubled since bottoming in early 2016, as the large overhang of inventories has been reduced significantly.
“Strong oil demand and greater compliance by the OPEC and non-OPEC producers with their agreed output pledges helped tip the market into deficit.”
Upside risks to the metal price forecast include more robust global demand than expected. Supply could be held back by slow incorporation of new capacity, trade sanctions against metals exporters, and policy actions in China.
Downside risks include slower-than-expected growth in major emerging markets, the restart of idle capacity, and an easing of pollution-related policies in China.
Precious metals are expected to climb three percent this year in anticipation of US interest rate increases and higher inflation expectations.
Grains and oils and meal prices are expected to rise in 2018, mostly due to lower planting intentions. The mild La Niña cycle that extended into the early part of the year only affected banana production in Central America and soybean production in Argentina and did not impact global markets for those crops substantially.
The possible introduction by China of countervailing duties in response to US tariff increases could impact the soybean market.
“Oil exporters with flexible currency regimes, relatively large fiscal buffers, and more diversified economies have fared better than others since the oil price collapse,” said Ayhan Kose, Director of World Bank’s Development Economics Prospects Group. “However, most oil exporters still face significant fiscal challenges in the face of revenue prospects that have weakened since 2014.”