Commodity prices expected to hit five-year low in 2025, dropping by 5%: World Bank

Commodity prices are expected to hit a five-year low in 2025, dropping by 5%, and further decrease by 2% in 2026, according to a World Bank report.

This follows a 3% decline this year, leading to the lowest levels since 2020.

The main driver of this decline is falling oil prices, although natural gas prices are expected to rise, and metals and agricultural raw materials will remain stable.

Brent crude oil prices are projected to average $80 per barrel in 2024, then fall to $73 per barrel in 2025, and $72 per barrel in 2026.

This marks a continuous decline from their peak in 2022, settling slightly above 2021 levels.

Long-term factors, such as decreasing global oil demand, especially in China, diversified oil production, and sufficient oil supply from OPEC+, present significant risks to oil prices. If OPEC+ ends its recent production cuts, prices may fall further.

Economic activity also affects industrial commodity demand. Stimulus measures in China and growth in the United States could increase commodity prices, but weaker global industrial activity might reduce them.

Agriculture

Agricultural prices, after increasing in 2024, are expected to fall by 4% in 2025 due to higher supplies from good weather. Little change is expected in 2026.

Food commodity prices, including grains, oils, and other foods, are set to drop by 9% this year and another 4% next year before stabilizing in 2026.

Meanwhile, prices for agricultural raw materials are expected to remain stable over the forecast period.

For metals, the price index is predicted to decline slightly over 2025-26.

After a 6% rise this year, base metal prices are expected to hold steady next year and drop by 3% in 2026, reflecting moderate industrial growth in major economies like China.

Risks

In the near term, conflicts in the Middle East could raise energy prices if the region's energy exports are reduced.

This could push oil and gas prices higher in late 2024 and beyond, affecting other commodities as well.

Other factors that might increase commodity prices include stronger-than-expected economic growth, particularly from policy stimulus in China, and supply disruptions from extreme weather due to climate change.

However, looking ahead, there are more risks pointing towards lower commodity prices. If OPEC+ gradually lifts its production cuts, there could be plenty of oil supply, which would significantly lower oil and overall commodity prices.

Additionally, weaker global industrial activity could reduce demand for energy and metals, further lowering prices.