Global commodity prices are projected to fall to a five-year low next year, owing to an “oil glut” that could limit the pressure on crude prices caused by a wider conflict in the Middle East, the World Bank said on Tuesday.
The World Bank expects the global oil supply to exceed demand by an average of 1.2 million barrels per day next year, it said in its latest Commodity Markets Outlook. Partly accounting for the large oil supply is a “major shift” in China, where the World Bank said demand for the commodity has “essentially flatlined” since last year due to lower industrial production and a shift to electric vehicles.
In addition, several countries that are not part of the Opec or its allies Opec+ are expected to ramp up oil production, the World Bank said.
The price of Brent crude oil is expected to average $80 per barrel this year, before falling to $73 and $72 per barrel in 2025 and 2026, respectively.
Tuesday's report comes as tensions continue to grow in the region, and continuing developments stemming from the Gaza war have led to volatility in prices. The price of Brent crude dropped sharply on Monday after Israel avoided targeting oil infrastructure during its retaliatory strikes on Iran at the weekend.
Iran said the three waves of Israeli attacks, which targeted military infrastructure, caused limited damage.
If the conflict in the region were to escalate, the World Bank anticipates a relatively short-term spike. Assuming wider escalation would reduce the global oil supply by 2 per cent, the Washington-based multilateral development bank forecasts Brent prices would peak at $92 per barrel before moderating to $84 per barrel next year.
The World Bank said this price per barrel accounts for 15 per cent above its baseline forecast, but 5 per cent above the average price for Brent crude in 2024.
“The good news is that the global economy appears to be in much better shape than before to cope with a significant oil shock,” said Ayhan Kose, the World Bank Group’s deputy chief economist and director of the Prospects Group.
The Opec+ members in September extended their voluntary production cuts of 2.2 million barrels per day through November, planning to phase out the cuts from December through November 2025.
Opec earlier this month lowered its outlook for oil demand this year from 2.03 million barrels per day to 1.93 million bpd, with weak Chinese demand accounting for the bulk of the downward revision. The group noted its projections show growth is still above the average of 1.4 million barrels per day recorded before the pandemic.
The World Bank said Opec's potential unwinding of its voluntary production cuts remains a key downside risk, as does a slowdown in global demand and diversifying oil production.
Prices set to fall
Overall, commodity prices are forecast to fall by 5 per cent in 2025 and 2 per cent in 2026 after a 3 per cent decrease this year. Food prices are projected to fall 9 per cent this year and 4 per cent in 2025, while energy prices are forecast to fall by 6 per cent in 2025 and 2 per cent in 2026.
The World Bank said a decline in food and energy costs should help central banks control inflation, although conflicts could exert upward pressure on prices.
The International Monetary Fund last week reported in its World Economic Outlook that global headline inflation is expected to fall to 3.5 per cent next year, well below its 9.4 per cent peak in 2022.
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