Weak commodity markets signal long-term easing of prices: World Bank

The Dollar Business Bureau Commodity prices are expected to stay weak for the entire year across the globe with southward movement of crude oil prices and precious metals in the first quarter, a latest report of the World Bank said. Global indices of commodities continued to fall in the first quarter of 2015 from the last quarter of 2014. As compared to the fourth quarter of 2014, the global food prices declined by 7.3%, crude oil 13% and metals 9% during the first three months of the current financial year. The quarterly report on the Commodity Markets Outlook, released on Wednesday, attributed the falling prices to “well-supplied markets” and “subdued demand due to weak global growth”. “Prices are expected to stay weak for the rest of this year, with only a marginal recovery expected in 2016,” the report said. However, the World Bank said, the slowdown in emerging economies and strengthening of US dollar will keep a check on prices. “Surplus production and subdued demand due to weak global growth are continuing to depress commodity prices. The slowdown in emerging economies, coupled with a strong US dollar, will likely keep the lid on prices. Although weaker prices will mean lower revenues for commodity exporting countries, they will help reduce current account and fiscal deficits in many commodity-importing countries,” said Ayhan Kose, Director of the World Bank’s Development Prospects Group. The average price of crude oil remained US$ 51.6 per barrel in the first quarter of 2015, down from US$ 74.6 per barrel in the previous quarter. The report also said that oil production is growing as oil producing countries continue to pursue the strategy of retaining market share instead of chasing price. US production also continues to climb by more than 1 million barrels a day year-on-year (YoY). Downside risks for all fuel markets are driven primarily by the higher-than-expected production that would occur if Iran returns to the global oil markets following a nuclear deal with the US. “The emergence of shale oil could be a game changer, potentially heralding a prolonged period of low oil prices,” the report said citing its study on oil price crashes in mid-80s. “Oil prices have declined dramatically and could stay low for the short and medium term if the current episode mimics the 1985-86 oil price collapse. We already see many parallels between now and the mid-80s plunge, including the increase in non-OPEC output, OPEC’s changing objectives, and the relatively high prices prior to these two episodes,” said John Baffes, Senior Economist and Lead Author of the Commodity Markets Outlook. According to the report, agricultural prices which declined by almost 5% in the first quarter are expected to weaken by 4.8% this year, while food commodity prices are expected to decrease 4.2%. During the past two quarters, average prices of precious metals, including gold and platinum, also declined with investors losing interest in them due to appreciation of the US dollar and expectations of a US interest rate hike.    

This article was published on April 23, 2015 – 5:06 pm IST.