WASHINGTON, October 20, 2015 –In its latest commodity
update, the World Bank is lowering its 2015 forecast for crude oil
prices from $57 per barrel in its July report to $52 per barrel.
The revised forecast reflects a further slowing in global economic
performance, high current oil inventories, and expectations that Iranian
oil exports will rise after the lifting of international sanctions,
according to the Bank’s new 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 three-month period, led by a renewed plunge
in oil prices prompted by expectations of slower global growth,
particularly in China and other emerging markets, abundant supplies, and
prospects of higher Iranian exports next year. Energy prices are
expected to average 43 percent lower in 2015 than in 2014. 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 in 2015 from the previous year’s levels.
“We see a five-year-long slide in most commodity prices continuing
in the third quarter of 2015. There are sufficient inventories of oil
and other commodities and demand is weak, especially for industrial
commodities, which is why prices may stay persistently low,” said John Baffes, Senior Economist and lead author of Commodity Markets Outlook.
Impact of El Niño on commodity markets...
Despite expectations of one of the strongest El Niño episodes on
record, the weather pattern, which affects winds and water temperatures
of the Pacific Ocean and changes precipitation levels, especially in the
Southern Hemisphere, is unlikely to cause a spike in global
agricultural prices because of ample supplies of most agricultural
commodities and weak links between global and domestic prices.
This is consistent with the limited impact on global markets of past
El Niño episodes. To date, global agricultural prices have declined
while those of key domestic markets have not shown large deviations from
trends due to El Niño.
However, El Niño could be a source of significant local disruptions
in the most affected regions, the Outlook says. In particular, the
weather pattern is likely to have a greater impact on more isolated
local food markets, which are not linked to international markets.
Possible effects of the Iran Nuclear Agreement on global energy markets.
Within several months, Iran could increase crude oil production by
0.5-0.7 million barrels per day (mb/d), potentially reaching a 2011
pre-sanctions level of 3.6 mb/d. In addition, Iran could immediately
begin exporting from its 40 million barrels of floating storage of oil.
Given that Iran has the largest known gas global reserves (18 percent
of the world total), it has the potential to produce and export a
significant volume of natural gas over the long term.
“The potential impact of Iranian oil and gas exports on global and
regional markets could be large over the long term if Iran can attract
the necessary foreign investment and technology to leverage its
substantial reserves,” said Ayhan Kose, Director of the World Bank’s Development Prospects Group.
Uncertainty about Iran’s capacity to ramp up exports adds to risks to
the energy-price forecast. Downside risks include higher-than-expected
OPEC production and continuing falling costs along with improved
productivity of the U.S. shale oil industry. Slowing demand and high
stocks could further weigh on oil prices. Upside risks include: an
accelerating decline in U.S. shale oil output, and reduced supply
because of geopolitical events.
The Outlook provides detailed market analysis for major commodities
groups, including energy, metals, agriculture, precious metals, and
fertilizers. According to the report:
- Metals prices fell 12 percent in Q3, the fourth consecutive quarterly decline, reflecting slowing demand, notably from China. The World Bank projects metals prices to fall by 16 percent in 2015.
- Precious metals prices fell 7 percent in Q3 and are likely to slide another 8 percent in 2015 on lower investment demand.
- Agricultural commodity prices fell by more than 2 percent in the quarter and are likely to fall by 13 percent in 2015, reflecting abundant supplies and high levels of existing grain stocks.
- Fertilizer prices fell 1 percent in Q3, and may decline by 1 percent in 2015, because of weak demand, and rising supply.
Full forecast and historical data, and detailed market commentary, are available at www.worldbank.org/commodities.
