Commodity Prices Expected to Remain Weak in 2015 Despite Slight Rebound in Oil Price

July 22, 2015

Special feature assesses how China and India play significant roles in world commodity markets

WASHINGTON, July 22, 2015 –The World Bank is nudging up its 2015 forecast for crude oil prices from $53 in April to $57 per barrel after oil prices rose 17 percent in the Apr-Jun quarter, according to the Bank’s latest Commodity Markets Outlook, a quarterly update on the state of the international commodity markets.

The Bank reports that energy prices rose 12 percent in the quarter, with the surge in oil offset by declines in natural gas (down 13 percent) and coal prices (down 4 percent). However, the Bank expects energy prices to average 39 percent below 2014 levels. Natural gas prices are projected to decline across all three main markets—U.S., Europe, and Asia—and coal prices to fall 17 percent. Excluding energy, the World Bank reports a 2 percent decline in prices for the quarter, and forecasts that non-energy prices will average 12 percent below 2014 levels this year.

 “Demand for crude oil was higher than expected in the second quarter. Despite the marginal increase in the price forecast for 2015, large inventories and rising output from OPEC members suggest prices will likely remain weak in the medium-term,” said John Baffes, Senior Economist and lead author of Commodity Markets Outlook.

Iran’s new nuclear agreement with the US and other leading governments, if ratified, will ease sanctions, including restrictions on oil exports from the Islamic Republic of Iran.

Downside risks to the forecast include higher-than-expected non-OPEC production (supported by falling production costs) and continuing gains in OPEC output. Possible upside pressures may come from closure of high-cost operations—the number of operational oil rigs in the US is down 60 percent since its November high, for example—and geopolitical tensions. 

In a special feature assessing the roles played by China and India in global commodity consumption, the Outlook finds that demand from China and, to a lesser extent, India, over the last two decades significantly raised global demand for metals and energy—especially coal—but less so for food commodities.

China’s consumption of metals and coal surged to roughly 50 percent of world consumption, and India’s to a more modest 3 percent for metals, and 9 percent for coal. These patterns reflect different growth models and commodity consumption patterns in the two countries.  

If the two countries catch up to OECD levels of per capita commodity consumption, or if India’s growth shifts towards industry, demand for metals, oil, and coal could remain strong. In contrast, given that the level of per capita consumption of food in China and India is already comparable with the world, pressures on food commodity prices are likely to ease as their population growth—one of the key determinants of food commodity demand—slows.

“China and India have played a significant role in driving global consumption of industrial commodities especially since the early 2000s. Going forward, while demand from India is likely to be a major factor in shaping consumption of industrial commodities, China will be important in driving global demand for energy given its efforts in rebalancing growth,” said Ayhan Kose, Director of the World Bank’s Development Prospects Group.

Commodity Markets Outlook also provides detailed market analysis for major commodity groups, including energy, metals, agriculture, precious metals and fertilizers.

Metals prices declined marginally in the quarter as most are still in surplus, particularly iron ore where prices are off two-thirds from their 2011 high. The World Bank projects metals prices to average 16 percent below 2014 levels this year, revised downward from 12 percent in April.

The largest decline is expected for iron ore (down 43 percent) due to new low-cost mining capacity coming online this year and next (mainly in Australia). Metals markets are adjusting by closures of high-cost operations and reduced investment. Markets will eventually tighten, in part due to large zinc mines closures, and as Indonesia’s ore export ban weighs on supplies, notably nickel.

Agricultural prices fell 2.6 percent in the quarter, due to large declines in food commodities – especially edible oils and grains – on further improvements of supply conditions and despite some adverse weather in North America and El Niño fears. The World Bank expects agriculture prices to average 11 percent below 2014 levels this year, revised downward from 9 percent in April.

Fertilizer prices, a key cost for most agricultural commodities, are likely to decline 5 percent on weaker demand and ample supply.

Full forecast and historical data, and detailed market commentary, are available at

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