World Bank Frets Over Commodity Price Volatility

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The combination of heightened trade tensions along with geopolitical risk means it is likely that commodity prices will face headwinds over the next few years, the World Bank said on Tuesday.

Indermit Gill, the World Bank Group's chief economist and senior vice president for development economics, said higher commodity prices are typically supportive of developing countries that account for about 60% of the world's commodity exporters.

"But we're now seeing the highest price volatility in more than 50 years," he said. "The combination of high price volatility and low prices spells trouble."

Volatility makes it difficult to make bets on the future, while low prices eat into the budgets of major exporters. Countries such as Saudi Arabia need crude oil priced at around $90 per barrel, though the kingdom can typically handle a short-term downturn.

The World Bank estimates that the global oil supply will outpace demand by 700,000 barrels per day (BBL/d) this year, suggesting global commodity prices could fall 12% from year-ago levels this year and another 5% in 2026. Brent, the global benchmark for the price of oil, traded early Wednesday at around $62 per barrel, down 16% in April.

When adjusted for inflation, the World Bank said global commodity prices are below the five-year average to 2019, the year before the COVID-19 pandemic. That means a boom that began with the Russian invasion of Ukraine in February 2022 and followed through the post-vaccination stage of the pandemic is over.

"The weakening growth outlook represents the latest shock to hit the global economy in what is proving to be an extraordinarily tumultuous decade for commodity markets," the World Bank stated. "Commodity-price volatility has been higher than in any previous decade since at least the 1970s."

Trade arteries were adjusted last year in response to attacks on shipping lanes from the Houthi rebel group in Yemen, prompting some shippers to add extra days to their voyages by avoiding the Red Sea and surrounding waterways.

This year, OPEC+, the core members of the Organization of the Petroleum Exporting Countries and non-member state allies such as Russia, opted to increase production from April, creating headwinds for commodities.

But it was so-called Liberation Day on April 2, when U.S. President Donald Trump unveiled sweeping tariffs on nearly every country that prompted much of the decline in Brent, with the contract losing nearly 13% in the days after an announcement that upended a global trade order that existed since World War II.

Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), warned that Trump's tariffs "clearly represent a significant risk to the global outlook at a time of sluggish growth."

But adding to the volatility, Trump later revised some of the reciprocal tariffs and offered some concessions for imported energy. Federal Reserve Chairman Jerome Powell added the tariff pressure was greater than expected, however, as was the impact on growth and inflation.

On Tuesday, The Conference Board reported that its measure of U.S. consumer confidence declined for the fifth month in a row to April, with consumers expressing concern about business conditions, employment prospects and future income.

"Notably, the share of consumers expecting fewer jobs in the next six months (32.1%) was nearly as high as in April 2009, in the middle of the Great Recession," said Stephanie Guichard, a senior economist at The Conference Board.

While not a developing country, the United States is the world leader in oil and natural gas production, and a net exporter of crude oil. For developing countries with a focus on commodity exports, the World Bank said to find liberal trade opportunities wherever they may exist.

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