Commodity Markets Outlook Report

Context:

The World Bank has published the Commodity Markets Outlook report.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Commodity Markets Outlook Report
2. Key Highlights of the CMO Report (October Edition)
3. Conclusion: Impacts of the West Asia Conflict on Commodity Prices

Commodity Markets Outlook Report

The Commodity Markets Outlook report offers insights into various commodity groups, including energy, metals, agriculture, precious metals, and fertilizers. This report serves as a valuable resource for understanding and analyzing global commodity markets. Key points about the report include:

• Commodity Coverage: The report encompasses a wide range of commodities, providing market analysis for major categories.
• Price Forecasts: It offers price forecasts for 46 significant commodities, assisting stakeholders in making informed decisions based on anticipated price movements.
• Publication Frequency: The report is released by the World Bank biannually, with editions published in April and October each year. This regular publication schedule ensures that the latest market trends and price projections are available to the public.

Key Highlights of the CMO Report (October Edition)

The October edition of the Commodity Markets Outlook (CMO) report provides essential insights into the global economic landscape and its relationship with commodity markets. Here are the key highlights from the report:

Global Economic Resilience:

• The report acknowledges that the current global economy is better equipped to handle a major oil-price shock than it was during the 1970s.

Potential for Commodity Market Disruption:

• Ongoing and escalating conflicts, including the West Asia conflict and the repercussions of the Russia-Ukraine war, pose potential disruptions to global commodity markets.

Commodity Price Projections for 2024:

• The report projects an overall decline of 4.1% in commodity prices in the upcoming year.
• Agricultural commodity prices are expected to decrease due to rising supplies.
• Base metal prices are also anticipated to drop by 5% in 2024.
• The report predicts that commodity prices will stabilize in 2025.

Impact of West Asia Conflict Escalation:

• The outlook for commodity prices would worsen if the West Asia conflict escalates.
• The extent of disruption to oil supplies would determine the effects.
• Scenarios are outlined based on different degrees of disruption and their impact on oil prices.
• A “small disruption” scenario, similar to the Libyan civil war in 2011, would lead to an initial oil price increase of 3% to 13%.
• A “medium disruption” scenario, equivalent to the Iraq war in 2003, would result in an initial oil price increase of 21% to 35%.
• A “large disruption” scenario, comparable to the Arab oil embargo in 1973, would lead to an initial oil price increase of 56% to 75%.

Food Security:

• Food security is defined as ensuring that all people have access to sufficient safe and nutritious food for a healthy life.
• By the end of 2022, more than 700 million people, almost 10% of the global population, were undernourished.
• The escalation of ongoing conflicts could exacerbate food insecurity, affecting regions within the conflict zones and worldwide.

Conclusion: Impacts of the West Asia Conflict on Commodity Prices

The Commodity Markets Outlook (CMO) report highlights the relatively modest impacts of the West Asia conflict on commodity prices, suggesting that the global economy has developed greater resilience to absorb oil price shocks. Several key conclusions from the report are as follows:

• Improved Global Resilience:
  • The global economy’s ability to withstand oil price shocks has significantly improved since the energy crisis of the 1970s.
• Reduced Dependence on Oil:
  • Countries worldwide have actively reduced their dependence on oil as an energy source.
  • The report notes that the amount of oil required to generate $1 of GDP has decreased by over half since 1970.
• Diversification of Energy Sources:
  • The global energy landscape has diversified with a broader base of oil exporters and the incorporation of renewable energy sources.
• Strategic Petroleum Reserves:
  • Various countries, including India, the USA, and China, have established strategic petroleum reserves to manage potential oil shortages effectively.
• Coordination and Futures Markets:
  • Countries have set up arrangements for the coordination of supply and developed futures markets to mitigate the impact of oil shortages on prices.

-Source: Business Standard