Rabat – In a report published on October 21, the World Bank Group, a global leading financial institution, reports that energy prices are likely to continue rising through 2022.
The report, titled Commodity Markets Outlook, details that crude oil prices are expected to reach $74 (MAD 669.52) per barrel in 2022, rising from a $70 (MAD 633.32) per barrel forecasted in 2021. Metal prices are likewise projected to decline by 5% in 2022 following an increase of 48% in 2021.
Following the outbreak of the COVID-19 pandemic in March 2020, agriculture, fertilizers, and precious metals prices have increased by about one-third compared to pre-pandemic levels.
In addition to the economic fallout of the pandemic, commodity markets have also suffered due to adverse weather. The record-breaking summer temperatures resulted in a corresponding increase in cooling demand, which in turn increased demand for electricity.
Drought negatively impacted hydro-electricity production and agricultural commodities. The supply of metal and coal was equally affected by floods. Production of other commodities was indirectly impacted by the surge in natural gas and coal prices. A lack of adequate vaccine supplies also led to a disruption of supply chains, which impacted commodity markets.
In the third quarter of 2021, energy prices continued their upward trajectory with an increase of 16%, with crude oil the least impacted. In the same period, crude oil prices averaged $72 per barrel, marking a rise of 7% from the previous quarter while natural gas and oil prices skyrocketed by 69% and 44% respectively. The rally in energy prices has been exacerbated by the chain disruptions in the US due to Hurricane Ida.
The report equally accounts for economic trends relating to agricultural commodities prices, noting that following the surge in prices in the third quarter of 2021, agricultural commodities or products stabilized.
The Bretton Wood institution explains the global price surge of commodities as a consequence of an uneven economic recovery. Economic recovery in major economies such as in China increased demand for fossil fuel while electricity production from renewable sources declined as a result of drought and low wind speed, causing supply and demand imbalance.
Regarding agricultural commodity prices, the World Bank notes that most markets remain ‘adequately’ supplied. Agricultural input costs increased amidst the rally in energy prices, leading several fertilizer manufacturers to halt production due to the historical 55% increase in production cost.
The spike in energy costs and agricultural commodity prices is pushing food prices higher in low-income countries such as Zambia and Zimbabwe as well as higher-income EMDEs countries (Emerging Markets and Developing Economies) including Argentina and Turkey.
The World Bank warns that a surge in commodity prices can lead to slow economic growth for energy-importing countries, and aggravate problems related to food insecurity in low-income countries.
In a joint report, the Food and Agriculture Organization of the United Nations (FAO) and the World Food Program (WFP) warned that 23 low-income countries are facing severe food insecurity as a result of the spike in agricultural commodity prices.
The World Bank projects that energy prices will rise beyond a 2% threshold before taking a downward trajectory in 2023 as the robust demand will be met with gradual increase in supply.
In addition to COVID outbreaks and climate, the report elaborates on urbanization as a major factor contributing to rise in commodity prices. The report cites that the rapid global urbanization causes high commodity consumption, leading to high commodity demand, which eventually results in increased prices.
However, the report also explains that, by far, urbanization research indicates that high density cities record lower energy consumption per capita, as opposed to low density cities.
The report sheds light on how climate change is putting pressure on gas and oil markets. As extreme temperatures become more common, the demand for cooling and heating is on the rise, resulting in energy shortages that could cause fluctuations in renewable energy production.
