Oil Prices to be Lower in 2019 on Slower-than-Expected Global Growth

Most commodity prices gained momentum in the first quarter of 2019 following last year’s declines, and many have recovered from the previous quarter’s lows.

The new World Bank Commodity Markets Outlook report reveals that Crude oil prices are expected to average $66 a barrel in 2019 and $65 a barrel in 2020, a downward revision from the October forecast due to the weaker-than-expected global growth outlook and greater-than-anticipated U.S. production.

Metal prices are expected to continue a recovery in 2019 that follows a sharp drop in the second half of 2018, the World Bank said in its April Commodity Markets Outlook. The recovery has been spurred by the stabilization of activity in China after weakness around the turn of the year, as well as various supply shortfalls.

“It has become clear that the commodity price cycle has come to an end, which is causing strains for exporters but may offer opportunities for importers,” said Ceyla Pazarbasioglu, World Bank Equitable Growth, Finance & Institutions Vice President.

According to Ceyla Pazarbasioglu, exporters may have to adapt to slower gains in commodity revenues with economic diversification, while importers could take advantage of lower commodity prices for increased investment.

Agriculture prices are projected to fall 2.6 percent this year but rebound in 2020 due to lower crop production and higher costs for energy and fertilizers. An escalation of trade tensions would likely push prices lower, but higher-than-expected energy costs could lift prices more than expected.

“The outlook for commodity prices is sensitive to policy-related risks, especially for oil,” said Ayhan Kose, Director of the World Bank’s Prospects Group. “The outlook for oil could be swayed by a range of policy outcomes, including whether the Organization of the Petroleum Exporting Countries (OPEC) and partners extend production cuts, the impact of the removal of waivers to the U.S. sanctions on Iran, and looming changes in marine fuel emissions regulations.”

After a drop in late 2018, oil prices have risen steadily since the start of the year, as OPEC and partners have cut production, and output has declined in Venezuela and Iran. U.S. shale production is expected to remain robust after surging in 2018.

Energy prices overall which also include natural gas and coal are expected to average 5.4 percent lower in 2019 than in 2018.

The report revealed that when countries intervene to dampen the effect of food price fluctuations on their citizens, the collective intervention of many countries can produce the opposite of the intended effect and amplify movements in world prices to the detriment of the most vulnerable populations.

Energy prices have diverged as OPEC production cuts have lifted oil prices while record-high U.S. shale gas exports have depressed natural gas and, indirectly, coal prices. Most metal and mineral prices have recovered from losses in the last quarter of 2018, amid strengthening growth prospects for China and supply bottlenecks. Agricultural prices rose moderately in the first quarter on expectations of lower plantings.

Crude oil prices, which averaged $68/bbl in 2018, are expected to average $66/bbl over 2019 and $65/bbl in 2020, with balanced risks primarily related to policy outcomes. Non-energy prices in 2019 are expected to remain below 2018 averages, before rising moderately in 2020 as the global economy emerges from its recent soft patch.

A Special Focus section illustrates the adverse poverty implications of food price spikes that tend to be amplified by commonly used trade-related government responses.