Global commodity markets are poised for notable declines in the coming years, with projected price drops of five percent in 2025 and an additional two percent in 2026. Following a 3 percent decline in 2024, total commodity prices are set to reach their lowest levels since 2020. This curve is driven primarily by a drop in oil prices, although the effects are somewhat moderated by rising prices for natural gas and relative stability in metals and agricultural commodities. According to the World Bank’s latest Commodity Markets Outlook, Brent crude oil is expected to average $80 per barrel in 2024 before dipping to $73 in 2025 and $72 in 2026. Should this projection hold, oil prices will have experienced four consecutive years of annual declines, reflecting fundamental shifts in the global demand and supply landscape.
The projected decrease in oil prices highlights longer-term shifts in the global economy, including slowing demand in major economies such as China, increasing diversification of oil production, and ample supply capacity maintained by OPEC+. Despite a potential for price spikes due to escalating tensions in the Middle East, underlying dynamics suggest considerable downside risk. Lower-than-expected demand from industrial sectors, particularly in key markets like China and the United States, could further temper price gains, as could the anticipated unwinding of recent production cuts by OPEC+.
While energy markets drive the overall downward trend, price developments across sectors vary significantly. In the metals sector, base metal prices have seen an uptick driven by industrial demand and supply chain disruptions, rising 10 percent year-to-date as of September. However, iron ore has underperformed relative to other metals, weighed down by China’s ongoing construction slowdown and ample supply levels. The demand for precious metals, particularly gold, has surged, reaching historic highs due to heightened geopolitical tensions and global economic uncertainty. Gold prices rose sharply, supported by demand from central banks and private investors seeking a safe haven amid declining U.S. interest rates.
Agricultural commodities present a more nuanced picture. While staple crop prices for products such as maize, soybeans, and wheat trended downward in 2024 due to favourable weather conditions and strong harvests, certain crops like cocoa, coffee, and rice hit record highs as supply chain disruptions and adverse weather contributed to price volatility. The World Bank’s food commodity index was down 4 percent year-to-date by September, but future price stability for these commodities remains uncertain as climate and trade-related risks persist.
The projected decrease in commodity prices signals potential inflationary relief for many economies, especially those struggling with high energy and food costs. For developing economies reliant on imports, such as energy-importing nations in sub-Saharan Africa, declining energy prices could ease inflationary pressures, providing some stability in the cost of living. However, for resource-rich countries that rely on commodities as their main revenue source, such as oil-producing nations, lower prices may strain national budgets, impacting fiscal stability and public investment.
These shifts carry wider economic implications, particularly for trade and growth. For developed economies, easing commodity prices could help balance inflationary pressures from supply chain disruptions and labour shortages, thereby supporting growth. Developing economies, which often rely on commodity exports for trade revenues, may face challenges if key exports decline in value, reducing foreign exchange earnings and putting pressure on trade balances.
Underlying this outlook is the impact of structural shifts in global oil supply and demand. Increasingly, non-OPEC+ producers such as Brazil, Canada, and Guyana are expanding output, adding to global supply. With OPEC+ expected to maintain ample spare production capacity—estimated at 7 percent of current output—prices are unlikely to experience sustained surges unless supply is restricted. This situation contrasts with previous periods of volatility when OPEC maintained less capacity, underscoring the importance of production flexibility and the ability to meet fluctuations in global demand. Additionally, global consumption growth is decelerating, with demand expected to rise by less than 1 percent annually in 2024-2025, primarily driven by emerging economies like China and India, while demand in advanced economies is anticipated to decline.
Geopolitical risks remain a significant variable, especially in energy markets, as escalating tensions in the Middle East could disrupt supply chains and drive prices upward. A prolonged conflict in the region could lead to higher oil and gas prices, with secondary effects on other commodities. Additionally, policy measures such as economic stimulus packages in major economies like China could spur demand, pushing prices upward in the short term. Conversely, further deceleration in global industrial activity, or underwhelming stimulus measures in China, could lead to weaker demand and downward pressure on commodity prices, particularly in the metals sector.
The current trajectory of commodity prices suggests a departure from the dramatic price swings that characterized the early 2020s, a period marked by COVID-19-induced supply shocks and the impact of the Russia-Ukraine conflict. With global growth stabilising and inflation edging toward target rates in many economies, commodity markets appear to be entering a phase of relative moderation. However, risks tied to geopolitical tensions, economic policy shifts, and extreme weather events underscore that even within this period of relative stability, significant price volatility remains a possibility.
