The World Bank is lowering its
2015 forecast for crude oil prices to $52 per barrel from $57 per barrel
in July on economic weakness and expectations of a jump in Iranian oil
exports after international sanctions are lifted, according to the
Bank’s latest Commodity Markets Outlook, a quarterly update on the state of the international commodity markets.
The Bank’s Energy Price Index tumbled 17 percent in the third quarter
of 2015 from the previous period, led by a 19 percent plunge in oil
prices prompted by expectations of slower global growth, particularly in
China and other emerging markets, and supply considerations. Coal and
natural gas prices both fell 3 percent in Q3. The Bank expects energy
prices to average 43 percent lower in 2015 than the previous year as oil
supply continues to outpace demand. Natural gas prices are expected to
register declines in all three main markets and coal prices are also
expected to slip on slowing import demand from China.
For commodities excluding energy, the World Bank reports a 5 percent
decline in prices in Q3, and forecasts that non-energy prices will
register a 14 percent decline from the previous year's levels.
“A five-year-long slide in most commodity prices continued in the
third quarter. Both ample supplies and weak demand, especially for
industrial commodities, contributed. Price weakness is expected to
persist for the rest of the year,” said John Baffes, Senior Economist and lead author of Commodity Markets Outlook.
Downside risks to the energy-price forecast include
higher-than-expected OPEC production and continuing falling costs and
improved productivity of the U.S. shale oil industry. Slowing demand and
high stocks could further weigh on oil prices. Upside risks include
accelerating declines in shale output, delayed implementation of the
Iran nuclear agreement, and supply curtailment because of geopolitical
events.
A special feature assesses the impact of El Nino on commodity markets.
Despite what is expected to be one of the strongest El Nino episodes on
record, the weather pattern is unlikely to cause a spike in global
agricultural prices because of the ample supply of major agricultural
commodities, weak links between global and domestic prices, and the
limited impact of past episodes. However, it could be a source of
significant local disruptions in the most affected regions, the Outlook
finds.
Thus far, both global and domestic prices of key rice grains have not
increased, even in countries at risk from El Nino. The weather pattern
-- which affects winds and water temperatures of the Pacific Ocean and
changes precipitation levels, especially in the Southern Hemisphere --
is likely to have a greater impact on more isolated local food markets
that are not linked to international markets. Weather disturbances tend
to have a robust short-run impact on local prices in a significant
number of maize markets in developing countries.
A special box examines possible effects of the Iran Nuclear Agreement on energy markets...
Within a few months of being lifted, Iran could increase crude oil
production by 0.5-07 million barrels per day (mb/d), potentially
reaching a 2011 pre-sanctions level of 3.6 mb/d. Iran could immediately
begin exporting from its 40 million barrels of floating storage of oil.
Over the longer term, Iran has the potential to produce and export
significant volumes of natural gas. The country has the world’s largest
known reserves, comprising 18 percent of the global total, and could
over time develop gas export capacity via pipelines to Europe via
Turkey, and eventually transport liquefied natural gas to Europe and
Asia.
“While the impact of Iranian oil exports on global markets is
expected to be relatively small in the short term, it could be much
larger eventually if Iran can attract the necessary foreign investment
and technology to utilize its substantial reserves. The short term
impact of Iran’s exports on regional natural gas prices will depend on
market conditions, but given the extent of its natural gas reserves,
Iran has the potential to become a significant producer and exporter
over the medium term,” said Ayhan Kose, Director of the World Bank’s Development Prospects Group.
The Outlook provides detailed market analysis for major commodities
groups, including energy, metals, agriculture, precious metals and
fertilizers. The report finds:
- Metals prices fell 12 percent in Q3, the fourth consecutive quarterly decline, reflecting slowing demand, notably from China and other emerging economies and weak global indicators for industrial production and manufacturing. Metals prices are projected to decline by 16 percent in 2015 due to increases in new production capacity and slowing demand growth in China.
- Precious metals prices fell 7 percent in Q3 and are projected to slide 8 percent in 2015 on lower investment demand.
- Agricultural commodities fell by 3 percent in the quarter and are forecast to fall by 13 percent in 2015, reflecting abundant supplies and high levels of grain stocks.
- Fertilizer prices fell 1 percent in Q3, and are projected to decline by 1 percent in 2015, because of weak demand, rising supply and destocking.
Full forecast and historical data, and detailed market commentary, are available at www.worldbank.org/commodities.
