The World Bank has projected that global commodity prices would decline to a five-year low in 2025 amid an oil glut that is so large that it could curtail the price effects of a wider conflict in the Middle East.
This is contained in a World Bank Group’s report titled: “World Bank 2024 Commodity Markets Outlook October 2024,” which projected that global commodity prices would fall by 5 per cent and 2 per cent in 2025 and 2026 respectively.
The report, which was released last weekend, stated: “Brent oil price is projected to average $80/b in 2024, about $3/b lower than last year, with prices expected to hover around $75 for the rest of the year before drifting lower to $73/b in 2025 and $72/b in 2026.
“This projection is predicated on no prolonged escalation in ongoing armed conflicts, a slowdown in oil demand growth, and a well-supplied oil market.
“Indeed, under these baseline assumptions, global oil supply next year is expected to exceed demand by an average of 1.2 million bpd—a degree of oversupply only surpassed during COVID-19-related shutdowns in 2020 and the 1998 oil price collapse.”
It ascribed the projected oil glut to a major shift in China, where oil demand has essentially flattened since 2023 amid a slowdown in industrial production and an increase in sales of electric vehicles and trucks powered by Liquefied Natural Gas (LNG).”
It added that several countries that are not part of the Organisation of Petroleum Exporting Countries (OPEC) or its allies (OPEC+) are expected to ramp up oil production.
The report, however, projected that if the current Middle East conflict would escalate and resulted in reducing the global oil supply by 2.0 per cent or 2 million barrels per day, the Brent prices would initially rise sharply to a peak of $92 a barrel.
“However, oil producers unaffected by the conflict could quickly respond to higher prices by boosting oil production.
“As a result, the price spike could be relatively short-lived, with the oil price averaging $84 a barrel in 2025. That would still be 15 per cent above the baseline forecast for 2025 but only 5 per cent above the 2024 average,” the report said.
The report also projected that global oil supply would reach about 103 mb/d in 2024, up from 102.3 mb/d in 2023, before rising to about 105 mb/d in 2025.
Most of the growth in production is expected to occur in the United States of America, with increases of about 0.6 mb/d in both 2024 and 2025.
The report said: “Supply is projected to continue increasing up to 0.5 mb/d a year in Brazil, Canada, and Guyana combined. In 2025, production is also predicted to increase in several small producers, such as Kazakhstan, Norway, and several African countries.
“Supply from OPEC+ members is assumed to increase only slightly in 2025, based on the assumption that the great majority of the 2.2 mb/d voluntary cuts will be extended further.”
The report also projected that global oil consumption would rise by about 0.9 mb/d in both 2024 and 2025, a marked slowdown from the 2 mb/d increase in 2023, after China lifted pandemic-related policy measures.
The World Bank Group’s Chief Economist and Senior Vice President, Mr. Indermit Gill, said that falling commodity prices and better supply conditions can provide a buffer against geopolitical shocks.
“But they will do little to alleviate the pain of high food prices in developing countries where food-price inflation is double the norm in advanced economies,” he added.
Speaking in the same vein, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group, Mr. Ayhan Kose, said that the good news is that the global economy appears to be in much better shape than before to cope with a significant oil shock.
“That opens up some rare opportunities for policymakers in developing economies: first, declining commodity prices can provide a helpful complement to monetary policy to bring inflation back to targets; second, policymakers have a window to wind back costly fossil-fuel subsidies,” he stated.
Dike Onwuamaeze
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