Most commodity price indexes rebounded in the second quarter of 2016, continuing their upward climb from January lows on improved market sentiment and tapering supplies. Non-energy commodity prices are expected to drop 4 percent in 2016, 1 percentage point less than forecast in the April assessment.
All main commodity price indexes (except food and precious metals) are expected to decline in 2016 due to large supplies and, in the case of industrial commodities, weak growth prospects in emerging market and developing economies (EMDEs).
- Oil prices jumped by more than a third due to supply outages and strong demand. Given this rebound and expected reduction in inventories during the second half of the year, the crude oil price forecast for 2016 is being raised to $43 per barrel (bbl) from $41/bbl in the April assessment, still a 15 percent drop from 2015.
- The oil price rebound reflects a number of supply disruptions that removed up to 2.5 million barrels per day (mb/d) of production at peak during May and June, with large losses concentrated in Canada due to wildfires, and in Nigeria due to militant attacks on oil infrastructure. In addition, there were disruptions in other countries, including Kuwait, Iraq, and Libya.
- Declines in non-OPEC production, led by the United States, were partly offset by higher OPEC production, mainly from Iran. Global oil demand remained strong, albeit slowing.
- In contrast, natural gas prices were down 5 percent in the second quarter, particularly in Europe and Asia, due to weak demand and surplus supplies of liquefied natural gas (LNG). However, U.S. gas prices rose from their lows in March on stronger demand and higher exports.
- Metals prices are projected to decline 11 percent in 2016, which follows last year’s 21 percent drop, due to weak demand prospects and new capacity coming on line.
- The largest declines are for nickel and copper, amid surplus supply, while the zinc market is expected to tighten with the closure of large mines.
- Downside price risks for non-energy industrial commodities include further slowdown in China and currency depreciations in key suppliers.
- Precious metals prices are projected to rise 8 percent in 2016 on stronger safehaven buying and deepening concerns about global growth prospects. A large upward revision for precious metal prices reflects the increased demand for safe haven assets.
- Agricultural prices for 2016 have been revised slightly upwards due to weather patterns in South America, but are still expected to register a marginal decline from last year.
- Agricultural prices have been revised up 2 percentage points, but are still projected to average marginally lower in 2016 than in 2015. The outlook reflects adequate supplies for most commodities but also takes into account reduced harvests in South America (especially Brazil) due to dry weather conditions.
- Agricultural commodity prices are also expected to be dampened by lower energy costs and plateauing demand for biofuels. Although the food price index is expected to grow only moderately next year, there is considerable dispersion among its key components.
- Grains and beverages are both projected to fall 4 percent and raw materials by 2 percent, while oils and meals are expected to increase 3 percent.
- Upside risks to agricultural price forecasts include the likely intensification of La Niña (unusually cold weather in the equatorial Eastern Central Pacific Ocean), which could affect some food commodities, such as maize in the United States and wheat in Australia.
- Downside price risks reflect increased agricultural subsidies, which would encourage greater supply of food commodities.
- Fertilizer prices are projected to retreat 18 percent in 2016 due to surplus capacity, weak demand, and low natural gas prices, used as feedstock to the production of some fertilizers.