Global commodity markets brace for impact as World Bank forecasts price crash amid oil glut
Onome Amuge
The World Bank has projected a decrease in energy prices for the next two years, with a six percent drop in 2025 and an additional two percent drop in 2026.
The report also predicts a nine percent decline in global food prices this year, followed by an additional four percent drop in 2025.
Despite these predicted decreases, food prices are still expected to remain nearly 25 percent higher than they were from 2015 through 2019.
In the World Bank’s latest Commodity Markets Outlook, the organisation projected that global commodity prices will plunge by nearly 10 percent between 2024 and 2026.
According to the World Bank, global commodity prices are likely to plunge to a five-year low in 2025, primarily due to an overabundance of oil supply that is so substantial, it is expected to counterbalance even the potential effect of an enlarged conflict in the Middle East.
Despite this decline, the report predicts that commodity prices will still be approximately 30 percent higher than they were in the five years preceding the COVID-19 pandemic.
“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,” the report stated.
The World Bank report explained that the oversupply of oil is partly due to a significant shift in China, where demand for oil has essentially stalled since 2023. This stagnation is attributable to a decrease in industrial production and an increasing preference for electric vehicles and trucks fueled by LNG (Liquefied Natural Gas) instead of oil.
The World Bank report noted that several countries, which are not members of OPEC+, are predicted to increase their oil production, further contributing to the oversupply of oil in the global market.
This, in combination with the existing large amounts of spare capacity available within OPEC+, amounts to approximately seven million barrels per day, which is double the amount of spare capacity that existed before the pandemic in 2019.
This oversupply is expected to cause a significant drop in commodity prices globally, with the report predicting that commodity prices will fall by nearly 10 percent between 2024 and 2026.
The World Bank report stated,“Global food prices are set to fall 9% this year and an additional 4% in 2025 before leveling off. That would still leave food prices nearly 25% above the average level from 2015 through 2019.
“Energy prices are expected to drop by 6% in 2025 and an additional 2% in 2026.
“Falling food and energy prices should make it easier for central banks to control inflation.
However, an escalation in armed conflicts could complicate that effort by disrupting energy supply and driving up food and energy prices.”
Indermit Gill, the World Bank Group’s chief economist and senior vice president, has stated that the anticipated decrease in commodity prices and the improved supply situation could serve as a shield against potential geopolitical disturbances.
However, Gill also noted that this relief is unlikely to significantly ease the burden of food inflation in developing countries, which is projected to be twice as high as in developed economies.
He added that the impact of high prices, conflict, extreme weather conditions, and other economic shocks have resulted in more than 725 million people being food insecure in 2024.
According to the World Bank report, ongoing conflicts in the Middle East have resulted in significant volatility in oil prices over the past year. This volatility stems primarily from concerns that the oil and gas infrastructure of major commodity producers in the region could be damaged if the conflict escalates.
Assuming that the conflict does not intensify, the World Bank projects that the average annual price of Brent crude oil is expected to reach a four-year low of $73 per barrel in 2025, falling from the $80 per barrel price that is currently observed this year.
The World Bank report also considered the possible effects of a potential escalation in the conflict in the Middle East, specifically the impact of a 2% reduction in global oil supply, or a decrease of 2 million barrels per day, by the end of this year.
This degree of disruption is comparable to the Libyan civil war in 2011 and the Iraq war in 2003. In the event of a similar disruption, the World Bank predicts that the price of Brent crude oil would initially surge to a peak of $92 per barrel.
“As a result, the price spike could be relatively short-lived, with the oil price averaging $84 a barrel in 2025. That would still be 15% above the baseline forecast for 2025 but only 5% above the 2024 average,” the World Bank disclosed.
Ayhan Kose, the World Bank Group’s deputy chief economist and director of the Prospects Group, has commented on the positive implications of the expected decline in commodity prices for the global economy.
Kose stated that the declining commodity prices could serve as a valuable supplement to monetary policy in helping to bring inflation back to target levels in developing economies.
Furthermore, Kose suggested that policymakers have a unique opportunity to reduce costly fossil-fuel subsidies during this period of declining commodity prices, which could help redirect resources towards more sustainable energy sources and reduce dependence on fossil fuels.