In its latest quarterly report on commodities, the World Bank has revised upward its forecast of oil prices in. It announced a price of 43 dollars per barrel against $ 41 expected in the second quarter. The institution also indicates that the crude price rose of 37% during the second quarter 2016. This increase is attributed to supply disruptions caused by wildfires in northern Canada and the sabotage of oil infrastructure in Nigeria.
Despite this leap of 37% in crude prices during the second quarter, “oil prices expected to remain below 15% this year compared to 2015 due to the existence of large stocks, which will take some time to run out “according to the July issue of the Commodity markets Outlook, the quarterly report of the World Bank in the markets for commodities. The revised forecast reflects the recent decline in oil demand and the resumption of some supplies. “We expect oil prices in the second half of 2016 to increase as the oversupply in the oil market decreases ” said John Baffes, senior economist at the World Bank and lead author of the report. That said, the forecasts indicate that the anticipated cuts will be in large part much lower than what was expected in the April edition of Commodity Markets Outlook.
Increases and decreases of indices in accordance with commodities
The institution maintains that the majority of indices of commodities are expected to decline this year. It also attributed the decline to “the persistence of a higher offer (…) and weak growth prospects in emerging and developing markets.” Moreover, the report also notifies that “the decline in commodity prices after 2011 weighed heavily on growth prospects in emerging and developing countries, exporters of commodities, which account for nearly half of the poor the planet “.
Gradual decline of the agricultural sector
“Agricultural prices are expected to fall more gradually than expected in April. The report reflects an adequate supply for most commodities, but also takes into account the weak harvests in South America. Prices of agricultural products should also be maintained at low levels because of lower energy costs and lower demand for biofuels, “the report said. It emphasizes the moderate growth of food products in 2016, but informed the fall in prices of cereals and drinks. Fertilizer prices are expected according to the report, to collapse this year “because of excess capacity and weak demand, among other factors.” The report also provides a sharp fall in metal prices compared to that expected in April 2016. “The prices of precious metals have been strongly revised upwards due to their status as safe havens in the context of serious concerns about the world economic growth prospects. A timid recovery in prices is expected in 2017 for most commodities under the combined effect of a stronger demand and a scarcity of supply. ”
The crucial role of energy
The report also examines the key role of energy prices in determining food prices. The boom experienced by the food sector after 2006 is related in part to higher energy prices. The low energy prices predicted by the World Bank, since 2014, are expected to keep food prices at low levels in the future. “Agriculture has high energy consumption : fuels are one of the main components of cost of production and transportation of food products. If generally improved crop conditions have also played a role in the price decline, the lower cost of energy has had a greater impact (…) “, said the World Bank, which stressed that the price of energy expected to fall with 16% this year, while food would fall with 26% below the highest rate achieved in 2011. “Not only energy represents more than 10% of the cost of agricultural production, but the fluctuations of energy prices also affect the incentives and policy measures related to the production of biofuels as an alternative energy source to oil, ” adds the report.
The diversion of some food crops to biofuel production has contributed significantly to the increase in demand for food. For this year, the World Bank predicts a 3.7% decrease in prices of non-energy products such as metals, minerals, agricultural products and fertilizers. It seems that this reduction is lower than the 5.1% decline predicted in the previous report.
By Darine Habchi