Oil demand could see “lasting impacts” from the coronavirus while modest gains are projected in metals and agriculture prices as commodity markets recover from the shock of the pandemic, according to the World Bank.
The World Bank boosted its projections from April for the average oil price in 2020 and 2021 to $41 a barrel and $44, respectively, as a slow recovery in demand is matched by an easing in supply restrictions. That still leaves prices well below 2019 levels of $61. Outside of energy, a small decline in metal prices will be offset by an increase in agricultural prices this year.
The swift recovery in oil prices following April’s price rout has stalled as the resurgent coronavirus spurs governments to rethink reopening plans. While stimulus can help buffer the impact, Covid-19 presents a challenge to commodity exporters, with policy makers needing to allow their economies to adjust smoothly to a “new normal” should the pandemic persist.
“In the post-Covid world, these countries need to be more aggressive in implementing policies to reduce their reliance on oil revenues,” said Ayhan Kose, director of the World Bank Group’s Prospects Group.
The pandemic could also have “lasting impacts” on oil demand through changes in consumer and employment behavior, according to the report. Air travel could see a permanent reduction, as business travel is curtailed in favor of remote meetings, reducing demand for jet fuel.
The institution expects metals and agriculture will continue to see modest price gains in the coming year, at 2% and 1% respectively, with metals buoyed by China’s rapid economic recovery and agricultural prices boosted by global food-supply disruptions.
The main risk to the price forecasts is the duration of the pandemic, including the risk of an intensifying second wave in the Northern Hemisphere and the speed at which a vaccine is developed and distributed, the World Bank said.