Adedapo Adesanya
By Adedapo Adesanya
The World Bank in its latest Commodity Markets Outlook says crude prices will average $74 per barrel next year.
Crude oil prices (an average of Brent, WTI and Dubai) are expected to average $70 in 2021, an increase of 70 per cent and are projected to be $74 a barrel in 2022 as oil demand strengthens and reaches pre-pandemic levels.
The use of crude oil as a substitute for natural gas presents a major upside risk to the demand outlook, although higher energy prices may start to weigh on global growth.
This is happening as energy prices soared in the third quarter of 2021 and are expected to remain elevated in 2022.
The Bretton Wood institution said that the rise is adding to global inflationary pressures and could shift economic growth to energy-exporting countries from energy-importing ones.
The report said that energy prices—expected to average more than 80 per cent higher in 2021 compared to last year—will remain at high levels in 2022 but will start to decline in the second half of the year as supply constraints ease.
Non-energy prices, including agriculture and metals, are projected to decrease in 2022, following strong gains this year.
“The surge in energy prices poses significant near-term risks to global inflation and, if sustained, could also weigh on growth in energy-importing countries,” said Mr Ayhan Kose, Chief Economist and Director of the World Bank’s Prospects Group, which produces the Outlook report.
“The sharp rebound in commodity prices is turning out to be more pronounced than previously projected. Recent volatility in prices may complicate policy choices as countries recover from last year’s global recession,” he added.
In 2021, some commodity prices rose to or exceeded levels not seen since the spike of 2011.
For example, natural gas and coal prices reached record highs amid supply constraints and rebounding demand for electricity, although they are expected to decline in 2022 as demand eases and supply improves.
However, additional price spikes may occur in the near term amid very low inventories and persistent supply bottlenecks.
As global growth softens and supply disruptions are resolved, metal prices are forecast to fall 5 per cent in 2022, after rising by an estimated 48 per cent in 2021.
Following a projected 22 per cent increase in 2021, agricultural prices are expected to decline modestly next year as supply conditions improve and energy prices stabilize.
“High natural gas and coal prices are impacting the production of other commodities and pose an upside risk to price forecasts,” said Mr John Baffes, Senior Economist in the World Bank’s Prospects Group.
“Fertilizer production has been curtailed by higher natural gas and coal prices, and higher fertilizer prices have been pushing up input costs for key food crops. The production of some metals such as aluminium and zinc has been reduced due to high energy costs as well.”
The institution then called on countries to benefit from accelerating the installation of renewable energy and reducing their dependency on fossil fuels.
The report notes that forecasts are subject to substantial risks—including adverse weather, the uneven COVID-19 recovery, the threat of more outbreaks, supply-chain disruptions, and environmental policies.
Furthermore, higher food prices, along with the recent spike in energy costs, are pushing food-price inflation up and raising food-security concerns in several developing economies, it warned.
