The Commodity Markets Outlook in eight charts

Almost all commodity prices recovered in the third quarter following steep declines earlier in the year due to the COVID-19 pandemic. Crude oil prices have doubled since their April low, supported by sharp oil supply cuts, but prices remain one-third lower than pre-pandemic. Metal prices recovered rapidly in response to a faster-than-expected pick up of China’s industrial activity. Some food prices have also risen. Looking ahead, oil prices are expected to increase gradually from current levels and average $44 per barrel in 2021, up from an estimated $41 per barrel this year , as a slow recovery in demand is matched by an easing in supply restraint. Metal and agricultural prices are projected to see modest gains in 2021. The main risk to price forecasts is the duration of the pandemic, including the risk of an intensifying second wave in the Northern Hemisphere.

1. The commodity price recovery from the pandemic has been uneven

The pandemic has had the largest impact on energy prices. After plunging in March and April, energy prices have seen a partial recovery, driven by crude oil prices. However, the recovery has stalled recently amid concerns about renewed COVID-19 infections and their impact on oil consumption. Oil prices are expected to remain close to current levels into next year, staying well below pre-pandemic benchmarks. In contrast, metal and agricultural commodities have recouped their losses from the COVID-19 pandemic and are expected to make modest gains in 2021.

2. Oil production has been cut sharply in response to the fall in consumption

The collapse in oil consumption in March and April triggered a sharp fall in oil prices. In response, many oil producers cut production, most notably the Organization of the Petroleum Exporting Countries and its allies who collectively agreed to production cuts of 9.7 million barrels per day—almost 10% of global output. The combination of production cuts and a pickup in consumption helped oil prices partially recover in the third quarter of 2020.

3. The pandemic is expected to have a lasting impact on oil consumption

Projections for oil demand have been revised down by major forecasters as a result of COVID-19. Some industry scenarios even suggest demand may have already peaked in 2019. The pandemic is likely to have lasting impacts on oil consumption by changing consumer and employment behavior. Air travel may see a permanent reduction, as business travel is curtailed in favor of remote meetings, reducing demand for jet fuel. A shift to working from home could reduce gasoline demand, but this may be offset by increased use of private vehicles if people remain averse to using public transport.

4. Metal prices have risen above pre-pandemic levels as global industrial activity recovered, led by China

Most metal prices are above their pre-pandemic levels, with copper seeing a particularly large increase. The robust recovery of industrial activity in China has led to a surge in demand for metals—China accounts for around half of global consumption of metals.

5. Gold prices have been boosted by the pandemic and policy responses

The pandemic triggered a flight to safety among investors, lifting gold prices which is a safe-haven asset. Prices have also been boosted by the depreciation in the U.S. dollar and decline in interest rates. Mine production disruptions, most notably in Mexico, Peru, and South Africa, and reduced gold recycling due to pandemic-induced restrictions on labor movement also supported prices.

6. Food prices have remained broadly stable and increased recently

Despite announcements of policy restrictions earlier in the pandemic (and some supply chain disruptions), food prices were relatively unaffected by the pandemic at the global level. There has been some increase in prices more recently, led by lower edible oil production and a weakening of the U.S. dollar.

7. The stock-to-use ratio remains high, indicating well supplied conditions

Food price stability reflects well-supplied conditions, as evidenced by the stock-to-use ratio, a measure of supply relative to demand. The ratio remains at its recent high levels.

8. Some regions have seen significant food price inflation, however

Despite relatively modest food price inflation at the global level, some regions have seen much larger price increases. Disruptions to food supply chains as a result of COVID-19 affected both the production and distribution of food, exacerbated in some cases by currency depreciations. South Asia, Sub-Saharan Africa, and Latin America have been among the most affected regions. The pandemic is expected to cause a rise in food insecurity and malnutrition.