Commodity prices across the globe were rocked by geopolitical and macroeconomic events with energy prices gaining 3 percent in the third quarter of 2018.
Some of the factors that impacted the commodity trends in 2018 included commodity-specific supply disruptions, rising of U.S. interest rates and the appreciation of the U.S. dollar.
Growing trade tensions between major economies and financial market pressures in some emerging market and developing economies (EMDEs) also contributed to the performance of the commodity markets.
Energy prices rose 3 percent in the third quarter of 2018 (q/q) and are more than 40 percent higher than the same period in 2017, with strong gains in oil, coal, and natural gas.
Oil prices were volatile in the third quarter of 2018, with the price of Brent reaching a low of $70/bbl in August, before peaking at $86/bbl. in early October. The increase in prices partly reflected continued production losses in Venezuela and concerns that the reintroduction of sanctions on the Islamic Republic of Iran by the United States may have a greater-than-expected impact on Iranian oil production and exports.
Production increases by other members of the Organization of Petroleum Exporting Countries (OPEC), as well as the Russian Federation, are expected to partly offset this decline. Coal and natural gas prices have been supported by strong demand for electricity in Europe and Asia resulting from unusually hot temperatures.
Non-energy commodity prices declined 7 percent (q/q) in the third quarter of 2018. Metals prices dropped nearly 10 percent on weaker global demand, as well as concerns about the effects of the U.S.-China trade dispute on growth in China, which accounts for 50 percent of global metals demand.
In contrast, supply constraints, including the closure of the world’s largest supplier of alumina and environmentally driven reductions in production in China, helped support prices of some metals. Agricultural prices fell nearly 7 percent, the largest quarterly decline since 2011 Q4.
Range of factors have contributed to the weakness, such as ample supplies for most oilseeds and grains (except wheat), trade tensions, which affected a range of agricultural prices (notably soybeans), and EMDE currency depreciation (especially the Brazilian real).
Energy prices are expected to average 33 percent higher in 2018 compared to 2017, a 13- percentage point upward revision from April 2018 and stabilize in 2019. Nonenergy prices are projected to be roughly stable, gaining just under 2 percent in 2018 and an additional 1 percent in 2019, a modest downward revision from the April 2018 forecast.
The outlook for commodity prices is vulnerable to policy-related risks, especially in the short term. However, it is likely that the effect of any additional tariffs or sanctions would moderate over the medium-term, as producers and consumers find new distribution channels and export markets.
Oil prices are expected to average $72/bbl in 2018 and increase to $74/bbl in 2019. These forecasts are significantly higher ($7/bbl and $9/bbl, respectively) than the April 2018 projections, due to larger threats of supply disruptions and robust demand.
Prices are likely to peak in the first half of 2019 and decline thereafter as U.S. production bottlenecks ease. After sizeable gains in 2018, natural gas and coal prices are expected to decline modestly in 2019.
Metals prices are forecast to gain 5 percent in 2018 and stabilize in 2019, reaching slightly lower levels than previously expected. Downside risks include a worsening of trade tensions between the United States and China and weaker global growth. Upside risks include stronger demand from China due to policy stimulus, and tighter environmental constraints and policy actions that limit production, notably in China.
Agricultural prices, whose 2018 average will be similar to that of 2017, are projected to gain nearly 2 percent in 2019 as input costs rise, including energy and fertilizers. Downside risks to the price forecast emanate from escalating trade tensions. On the upside, risks include persistently high energy prices, which would raise fuel costs, fertilizer prices, as well as encouraging biofuels production, thereby lifting prices of energy-intensive crops, notably grains and oilseeds.