The Commodity Markets Outlook, published today, reflects the effects of the conflict in Ukraine and the severity of disruptions to commodity flows.
Commodity prices surged during the first quarter of 2022
The increase in prices reflected the effects of the war in Ukraine as well as continued growth in demand and various constraints on supply. For most commodities, prices are expected to be significantly higher in 2022 than in 2021 and to remain high in the medium term. The outlook for commodity markets depends heavily on the duration of the war in Ukraine and the severity of disruptions to commodity flows, with a key risk that commodity prices could be higher for longer.
Russia and Ukraine are large exporters of many commodities
In particular, they are important for energy, fertilizers, and some grains and metals. For example, Russia is the world’s largest exporter of natural gas, nickel, and wheat, while Ukraine is the largest exporter of sunflower seed oil. These commodities saw particularly steep increases following the start of the war in Ukraine.
Crude oil prices reached their highest level since 2013
The price of Brent crude oil averaged $116/bbl in March 2022, its highest level since 2013. The war in Ukraine has started to disrupt Russia’s oil exports. Several countries, including Canada, the United Kingdom, and the United States, announced plans to ban or phase out imports of oil from Russia, while many traders avoided buying Russian oil. Oil prices are forecast to average $100/bbl in 2022 before declining slightly to $92/bbl in 2023.
OPEC+ oil production remains below target
Production among the OPEC+ group of oil producers rose in 2022Q1, however, it was nearly 1.4 mb/d below the group’s target in March 2022. In addition to prolonged shortfalls in Nigeria and Angola, production in Russia fell following the start of the war. While some OPEC+ countries have spare production capacity, especially Saudi Arabia and the UAE, there are signs that many members are already at production capacity.
In March 2022, European natural gas prices were almost seven times higher than in March 2021, while over the same period South African coal prices tripled, with both prices reaching an all-time high. Much of the increase has been a result of expected disruptions to Russia’s natural gas and coal exports, however, the rally in prices had already been underway in the aftermath of COVID-19, amid rebounding demand and constrained supply. The increase in natural gas and coal prices has also pushed up the cost of fertilizers since they are used as inputs in the manufacture of fertilizers.
Food prices surged in March
The World Bank’s broad food commodity price index gained 14 percent in 2022Q1 (q/q) and stands nearly 20 percent higher than a year ago. Trade disruptions and high input costs fueled a rally that pushed some food commodity prices to record highs, with particularly large increases for wheat prices. Production shortfalls played a key role as well, especially in wheat and soybeans, partly in response to lower yields in South America. Higher fertilizer prices are a key concern for food prices next year.
Prices of some metals reached all time high
Metals prices as a group rose 13 percent in the first quarter of 2022 (q/q). Some metal prices reached all-time highs in March amid concerns about supply disruption, while inventories reached historically low levels. The war in Ukraine has been a key driving force behind aluminum and nickel price movements, while high energy prices have affected aluminum and zinc. Russia is an important producer in some metals, including aluminum and nickel. These metals are key inputs into renewable technologies, such as solar panels and wind turbines. As a result, further price increases or disruptions in supplies of these metals could make the energy transition more costly.