Lower oil demand likely to persist beyond 2021 due to COVID-19 pandemic: World Bank

While metal and agricultural commodities have recouped their losses from the COVID-19 pandemic and are expected to make modest gains in 2021, energy prices, despite some recovery, are expected to stabilize below pre-pandemic levels next year, the World Bank said Thursday.

Oil prices fell dramatically in the early stages of COVID-19 and have only partially regained pre-pandemic price levels, according to the World Bank’s semi-annual Commodity Markets Outlook report.

Oil prices are expected to average 44 U.S. dollars per barrel in 2021, up from an estimated 41 dollars per barrel in 2020, the report showed. Previous data showed that oil price averaged 61 dollars per barrel in 2019.

Demand is expected to rise “only slowly” as tourism and travel continue to be held back by health concerns and as global economic activity is anticipated to return to pre-pandemic levels only in the year after next, the report said, adding that supply restraint is expected to be eased steadily.

Energy prices overall — which also include natural gas and coal — are expected to rebound sizably in 2021, following large declines in 2020, an upward revision from April’s forecast, the latest report said.

The report also warned that a resurgence of a second wave of the pandemic that results in more lockdowns and less consumption, and delays in vaccine development and distribution, could lead to lower energy prices than forecast.

“When declines in commodity prices are short-lived, policy stimulus can buffer their impact. However, when prices remain depressed for an extended period, policy makers need to find solutions so their economies can adjust smoothly to a new normal,” said Ayhan Kose, World Bank Group acting vice president for Equitable Growth, Finance & Institutions and director for the Prospects Group.

“Because of COVID-19, the new normal for oil-exporting emerging and developing economies arrived earlier,” Kose said. “In the post-COVID world, these countries need to be more aggressive in implementing policies to reduce their reliance on oil revenues.”

Metal prices are expected to post modest increases in 2021 after falling in 2020, supported by the ongoing recovery in the global economy and continued stimulus from China, the report noted, adding that a prolonged period of weak global growth would lead to lower prices than forecast.

Agriculture prices, meanwhile, were relatively unaffected by the pandemic, but the number of people at risk of food insecurity has risen as a result of the broader effects of the global recession, according to the report.

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