Global commodities markets face lasting disruption because of the coronavirus outbreak, which will hit the energy sector particularly hard, according to the World Bank.
Energy prices will be 40% lower this year than in 2019, the Washington-based institution said in a report. Oil’s collapse will be followed by the “weakest recovery in history,” it said.
The impact of the coronavirus has reverberated from energy to metals to food. It has upended trade flows and reshaped entire industries. Even when the worst of the pandemic is over, oil demand will face structural changes as enhanced border checks, unwinding supply chains and the rise of home working diminish the need for transportation fuels, the World Bank said.
“In the longer term, the pandemic could have lasting impacts on commodity demand and supply, affecting both commodity exporters and importers,” it said.
The institution slashed forecasts for average oil prices this year to $35 a barrel, from $58 in October. Next year will see crude recovering to $42 a barrel, though this too is down from earlier projections of $59. Crude in New York fell below zero earlier this week.
The crisis is exposing the underlying weakness of OPEC. The cartel and its allies agreed to slash production to reduce the glut in the market, but it’s falling far short of the unprecedented destruction in demand. Prices have only fallen further since the announcement, which the World Bank expects will experience the same fate as other organizations that sought to restrict supply.
“While OPEC and its partners agreed to new production cuts in April, in the longer term, the current arrangement will most likely be subjected to the same forces that led to the collapse of its predecessors,” the report said.
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