Commodity prices have moved in different directions in recent months – energy prices rose while agriculture and metal prices fell – and are expected to rise or stabilize in 2019, according to the October .
The following five charts explain:
Commodity prices have been buffeted by a number of factors this year, including commodity-specific disruptions, rising U.S. interest rates, an appreciation of the U.S. dollar, growing trade tensions between major economies, and financial market pressures in some emerging market and developing economies.
Energy prices gained 3 percent in 2018 (q/q), partly in response to the impending re-imposition of sanctions on Iran by the United States along with continuing declines in production in Venezuela. Oil prices are expected to remain near their current levels—averaging $72 per barrel in 2018 and $74/bbl in 2019. In contrast, agricultural and metal prices declined 10 and 7 percent in the third quarter, respectively, amid robust supplies and trade disputes. Metal prices are expected to stabilize in 2019 whereas agricultural prices are projected to gain 2 percent.
The World Bank Energy Price Index rose by 3 percent in the third quarter of 2018 (q/q) and is more than 40 percent higher than the same period in 2017, with strong gains across oil, coal and natural gas. For crude oil, prices have been supported by a combination of robust demand and several supply concerns. Production continues to decline in Venezuela, while the impact of U.S. sanctions on Iranian oil exports is expected to be larger than in 2012. Oil prices are expected to increase to $74/bbl in 2019 from a projected $72/bbl in 2018, before easing to $69/bbl in 2020.
Prices are particularly vulnerable to additional supply shocks at present, given limited spare capacity among OPEC members and declines in stocks. These shocks include faster than expected declines in output in Iran and Venezuela, geopolitical events, additional sanctions, or natural disasters. Coal and natural gas prices have been supported by strong demand resulting from unusually high temperatures in Europe and Asia, which boosted demand for electricity, but prices are expected to moderate in 2019.
After gaining momentum earlier in the year, most agricultural commodity prices weakened significantly in the third quarter of 2018. This was mostly in response to upward revisions to production estimates for key crops and, to a lesser extent, currency depreciation among key commodity exporters. Edible oils and meals suffered the largest losses following China’s imposition of a 25 percent tariff on soybeans from the United States.
The Agricultural Price Index is expected to be roughly unchanged in 2018, compared with 2017, and rise by almost 2 percent in 2019, mainly owing to higher costs of energy and fertilizers. Downside risks to the price forecast emanate from escalating trade tensions. On the upside, persistently high energy prices could lift prices of energy-intensive crops, notably grains and oilseeds. Higher energy prices raise operating costs, increase fertilizer prices, and encourage biofuels production.
Although prices are expected to remain broadly unchanged in 2019, upside risks to the forecast include the possibility of higher-than-expected demand from China resulting from fiscal and monetary stimulus measures, and supply reductions due to stricter environmental policies. Downside risks include the possibility of a worsening in the trade dispute between the United States and China.