Commodity Markets in the context of COVID-19:

Transcript:Commodity Markets in the context of COVID-19::
Commodity Markets in the context of COVID-19: Developments, Outlook, and Risks 1 JOHN BAFFES Senior Economist WORLD BANK POLICY CENTER FOR THE NEW SOUTH June 24, 2020 Commodities before and after COVID-19 Source: Federal Reserve Bank of St. Louis, International Energy Agency, and World Bank. Notes: Global growth forecasts are from the Global Economic Prospects (June 2020). Commodity price forecasts for oil, metals, and gold are from the Commodity Markets Outlook (October 2019 and April 2020 editions). Oil demand forecast comes from IEA Oil Market Report (January and June 2020). US dollar represents the broad trade-weighted index for goods and services (DTWEXBGS) and 10-year Treasury represents the constant maturity rate (DGS10), both January and May 2020 averages. ‘pp’ and bps’ denote percentage points and basis points, respectively. 2 Challenging global economic outlook Recent developments The COVID-19 pandemic has delivered an enormous economic shock to the global economy, pushing many countries into steep recession. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020—the deepest global recession in eight decades. Per capita incomes in most EMDEs are expected to shrink this year, tipping many millions into poverty. The global recession would be deeper if bringing the pandemic under control took longer than expected, or if financial stress triggered cascading defaults. Source: World Bank, Global Economic Prospects (June 2020 edition). Note: EMDE stands for Emerging Markets and Developing Economies. 3 Commodity prices were fairly stable ... until COVID-19 Source: World Bank Note: Last observation is May 2020. The shaded area (‘COVID-19’) reports February 2020 onwards. Metals Agriculture Energy 4 COVID-19 Where are commodity prices heading? 5 Oil and transport demand collapsed following the outbreak Traveler journeys in the U.S. Source: BP Statistical Review, International Energy Agency (June 2020 monthly report), U.S. Transportation Administration, World Bank. Notes: Right figure shows checkpoint travel numbers reported by the U.S. Transport Security Administration. Last observation is 06/21/2020. Declines in global oil demand 6 Brent and WTI prices during COVID-19 Brent US$/bbl January 20 COVID-19 human-to human transmission confirmed March 6 OPEC+ fail to agree on cuts April 13 OPEC+ agree to new cuts WTI US$/bbl Source: Bloomberg and World Bank Note: Last observation is June 16 (Brent) and April 21 (WTI). 7 Market and policy responses to the oil price collapse 8 Count Source: Baker Hughes Note: First and last observations are January 3 and June 19, 2020. Rig count in the U.S.