The Strategist

WB: Pandemic hits oil prices, metals and food prices show growth

10/23/2020 - 03:22

In comparison to the financial crisis of 2008-2009, when a deep decrease in demand (and subsequently prices) for all commodities was observed, the effect of the COVID-19 pandemic on many commodities was distinct, the World Bank says in its new report. Although prices of energy goods are predicted to decline by a third at the end of the year, with a subsequent rebound of 10%, metal prices have already risen to pre-crisis peaks and food prices have stayed virtually constant on average.

According to a World Bank report, markets recovered for almost all goods in the third quarter of 2020. Oil rates have doubled from the April low in particular (from $21 to $40 a barrel) but remain one-third below the pre-pandemic level.

In the future, the WB predicts oil prices to steadily escalate to an average of $44 a barrel. A steady market recovery would be followed by a loosening of the existing supply limits for this commodity. Currently, OPEC+ is limiting its capacity to 7.7 million barrels per day and is expected to extend this decline until the end of the year. At the end of April 2022, a further reduction of 5.8 million barrels of production is expected to be carried out. The terms and conditions for the continuity of the transaction are, however, currently under consideration among the participants. Longer-term trends, such as a permanent decrease in air travel, could also impact the market.

Overall, the WB predicts that prices of energy supplies (oil, gas, coal) will be one-third lower this year than in 2019 (prices of natural gas rose sharply in the third quarter and prices of coal remained stable) and will grow by approximately 10% in 2021. 

In the third quarter of 2020, non-energy product prices rose by 10 percent on average and will show a small year-end rise relative to 2019. During this time, metals grew by 20 per cent. This rapid recovery has taken place against the backdrop of China's accelerating industrial development. Prices have now hit pre-pandemic thresholds for most metals, so the WB expects to see a small 2 percent rise in the next year.

For food commodities, between July and September 2020, prices grew by 6%, with growth in almost all categories except cereals. An average growth of 3 percent is expected for this group for this year and 1 percent for the next year. 

The World Bank experts note that their conditions now vary, unlike the 2008-2009 recession, where all raw materials suffered months of price decline. The length of the pandemic-and the possibility of a second wave in the Nordic countries-remains the key possibility of this demand prediction. The pace at which vaccines are implemented and delivered, says the World Bank, is a significant consideration here.