Why in the News?

• The World Bank has published the Commodity Markets Outlook report.

What’s in Today’s Article?

• About CMO Report (Objective, Key Highlights of October edition)
• Conclusion

Commodity Markets Outlook Report:

• Commodity Markets Outlook report provides market analysis for major commodity groups - energy, metals, agriculture, precious metals, and fertilizers.
• The report forecasts prices for 46 key commodities.
• It is published by the World Bank in April and October, every year.

Key Highlights of the CMO Report (October edition):

• Overall Outlook:
  • As per the report, the global economy is in a much better position than it was in the 1970s to cope with a major oil-price shock.
  • However, an escalation of the latest conflict in the West Asia—which comes on top of disruptions caused by the Russian-Ukraine war—could put global commodity markets into difficult situation.
  • The report provides a preliminary assessment of the potential near-term implications of the conflict in West Asia for commodity markets.
• Commodity Prices Likely to Fall:
  • Overall commodity prices are projected to fall 4.1% next year.
  • Prices of agricultural commodities are expected to decline next year as supplies rise.
  • Prices of base metals are also projected to drop 5% in 2024.
  • Commodity prices are expected to stabilize in 2025.
• If the Conflict Worsens in West Asia:
  • The outlook for commodity prices would darken quickly if the conflict were to escalate.
  • The effects would depend on the degree of disruption to oil supplies. In a “small disruption” scenario, the global oil supply would be reduced by 500,000 to 2 million barrels per day—roughly equivalent to the reduction seen during the Libyan civil war in 2011.
    • Under this scenario, the oil price would initially increase between 3% and 13% relative to the average for the current quarter—-to a range of $93 to $102 a barrel.
  • In a “medium disruption” scenario—roughly equivalent to the Iraq war in 2003—the global oil supply would be curtailed by 3 million to 5 million barrels per day.
    • That would drive oil prices up by 21% to 35% initially—to between $109 and $121 a barrel.
  • In a “large disruption” scenario—comparable to the Arab oil embargo in 1973— the global oil supply would shrink by 6 million to 8 million barrels per day.
    • That would drive prices up by 56% to 75% initially—to between $140 and $157 a barrel.
  • Impact on Food Security:
    • Food security is defined when all people, at all times, have physical and economic access to sufficient safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.
    • At the end of 2022, more than 700 million people—nearly a tenth of the global population—were undernourished.
    • An escalation of the latest conflict would intensify food insecurity, not only within the region but also across the world.

Conclusion:

• The fact that the conflict has so far had only modest impacts on commodity prices may reflect the global economy’s improved ability to absorb oil price shocks.
• Since the energy crisis of the 1970s, the report says, countries across the world have bolstered their defenses against such shocks.
• They have reduced their dependence on oil—the amount of oil needed to generate $1 of GDP has fallen by more than half since 1970.
• They have a more diversified base of oil exporters and expanded energy resources, including renewable sources.
• Countries such as India, USA, China have established strategic petroleum reserves, set up arrangements for the coordination of supply, and developed futures markets to mitigate the impact of oil shortages on prices.
• These improvements suggest that an escalation of the conflict in West Asia might have more moderate effects than would have been the case in the past.