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Energy, metals commodity prices seen strengthening

John Baffes's picture

Prices for most industrial commodities, notably energy and metals, are projected to rise in 2017 while agricultural prices are expected to remain stable, the World Bank says in its April 2017 Commodity Markets Outlook.

Closely watched crude oil prices are forecast to rise to an average of $55 per barrel (bbl) over 2017 from $43/bbl in 2016, climbing to $60/bbl next year. The forecast is unchanged since October and reflects the balancing effects of production cuts agreed by the Organization of Petroleum Exporting Countries (OPEC) and other producers on one side and a faster-than-expected rebound in the U.S. shale oil industry on the other. World oil demand is growing strongly, although at a slower pace than the 2015 spike triggered by lower oil prices.

There are significant risks to the oil price forecast. On the upside, stronger demand and greater compliance by OPEC and other producers to the production cut arrangement could accelerate rebalancing. So could any supply outages among major exporters. An OPEC decision to expand production cuts or rising production cuts would also support higher prices.

Downside price risks include weaker compliance with the OPEC agreement, rising output in major exporters, or slower demand growth. A faster-than-expected rise in U.S. shale oil production could also affect the supply balance.

Prices for metals, which include iron ore, zinc, lead, and copper, are projected to jump 16 percent. The gain in this index reflects strong demand from China and a number of supply constraints that include labor strikes, contractual disputes, and export policies. China’s effort to boost its commodity-intensive infrastructure and construction sectors has been a key driver of metals demand. However, China’s transition to a consumption-led economy, along with industrial reform and environmental concerns, is expected to ease growth in metals demand.

Precious metals prices are projected to decline by 1 percent in 2017 and a further 1 percent in 2018 as benchmark interest rates rise and safe-haven buying ebbs.

The agricultural commodity price index is anticipated to remain broadly stable in 2017, with moderate increases in oils and meals and raw materials offset by declines in grains and beverages. There are currently adequate supplies of most food commodities, and in the case of grains, stock-to-use ratios are expected to reach multi-year highs. The end of the El Niño/La Niña cycle, which began in late 2015, limits upside risks to 2017 agricultural price forecasts.

The outlook can be downloaded here and detailed prices forecast for 46 commodities up to 2030 here. Earlier reports and forecast can be found here.

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