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International studies revealed that the Commodity markets have been buffeted through the COVID-19 pandemic, which has already caused a historical sudden stop in economic activity. The pandemic has affected both the demand and supply of commodities by the impact of mitigation measures on activity and supply chains. The prices of most commodities have declined since January, mainly those that are related to the transportation industry. The Experts in the studies also stated that Energy prices declined 18.4 percent (q/q) in 2020 Q1, with a marked deterioration throughout the quarter as the severity of COVID-19 became increasingly apparent.

compic1Crude oil prices averaged $32/bbl in March, a fall of 50 percent compared with January. Prices reached a historic low in April with some benchmarks trading at negative levels. Demand for oil has collapsed as a consequence of COVID-19 mitigation measures which have sharply curtailed travel and transport, which account for almost two-thirds of oil demand. The decline in prices was exacerbated by the breakdown of the production agreement between OPEC and its partners in early March, and prices failed to rally when a new contract to reduce production by 9.7mb/d disappointed markets in April. While natural gas prices have also seen sizeable falls, albeit less than for crude oil, coal prices have seen smaller falls partly because demand for heating and electricity has been somewhat less affected by mitigation measures. Most non-energy prices also declined in 2020 Q1, but by less than energy prices. The metals and minerals price index declined 5 percent on the quarter, but with significant variation among its components. Copper and zinc prices were fallen by almost 15 percent relative to their January peak, reflecting their close relationship with global economic activity. In contrast, iron ore prices have declined just 7 percent, with weakening demand partly balanced by supply disruptions. Among precious metals, gold prices increased modestly amid heightened uncertainty and safe-haven flows, while platinum prices dropped by 23 percent reflecting their heavy use in the production of catalytic converters in the transportation industry. With some exceptions, agricultural commodity prices saw minor falls during the first quarter reflecting their indirect relationship to economic growth. However, natural rubber prices fell 25 percent from their January peak largely because two-thirds of the crop is used in the manufacture of tires. Prices of maize and some edible oils fell as well due to the collapse of biofuel demand.


Outlook and risks

Energy prices are expected to average 40 percent lower in 2020 than in 2019 (a major downward revision from October) but see a sizeable rebound in 2021.

Non-energy prices are projected to decline 5 percent in 2020 (a smaller downward revision from October) and stabilize in 2021. The outlook is exceptionally uncertain and depends on the duration and severity of the pandemic, and how quickly mitigation measures can be lifted. Oil prices are projected to average $35/bbl in 2020 before recovering to $42/bbl in 2021, substantially lower than the October forecast of $58/bbl and $59/bbl. Oil prices are expected to recover only very gradually from their current low levels, before picking up more strongly into next year, which would be among the weakest recovery from a price collapse in history. The forecast reflects an expected plunge in oil demand of almost 10 percent (9.3mb/d), which would be unprecedented in history. The largest prior decline was in 1980 when oil demand fell by 4 percent. Against this drop, the production cuts by OPEC and its partners may be insufficient, with a major surplus expected in 2020Q2, which will likely overwhelm storage capacity and cause widespread shutdowns of production among other producers, particularly in the U.S. and Canada. Prices are expected to rise in 2021 as demand recovers, albeit to a lower level than previously forecast. Risks are predominately to the downside and include a slower end to the pandemic that could lead to much lower demand than currently forecast, as well as a deeper-than expected recession. To the upside, a faster fall in production could cause oil prices to rise more sharply in the latter half of 2020 and into 2021.

Metal prices are projected to fall 13 percent in 2020 before rebounding modestly in 2021, as slowing global demand and the shutdown of key industries weigh heavily on the market. Risks to this outlook are to the downside, including a greater-than-expected slowdown in global growth.


Agricultural prices are expected to remain broadly stable in 2020 as they are less sensitive to economic activity than industrial commodities, while production levels and stocks for most staple foods are at all-time highs. However, concerns about food security remain. Some countries have already announced temporary trade restrictions such as export bans, while others began stockpiling food commodities through accelerated imports. Although these measures have not yet been used widely, they could lead to problems if they are used extensively. Also, there may be problems with food availability (and price spikes) at the local level due to supply chain disruptions and border closures in response to containment strategies that may restrict food flows or movement of labor.

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