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Broad commodity price trends Index, nominal terms, 2010 = 100 180 150 Energy 120 90 60 Agriculture Metals 30 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: World Bank Note: Last observation is August 2017.
Prices are still higher than the 1985-2004 average Index, constant US$ (2010 = 100) 160 120 Agriculture Changes (%) in real prices to 2016 from: 1986-2004 1998 Agriculture: +38 +35 Energy: +65 +147 Metals: +38 +63 80 Metals 40 Energy 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: World Bank.
Agriculture is an energy intensive industry Energy intensity Transmission elasticities WORLD Elasticity estimates HIGH INCOME DEVELOPING Manufacture Agriculture 0.40 0.33 SSA 0.30 US Canada EU-12 0.20 0.16 0.18 0.19 0.17 China Brazil 0.10 0.11 India 0.04 Turkey 0 3 6 9 12 15 18 Cost of energy 0.00 Non-energy Grains Oils and meals Other food Raw materials Metals Fertilizers Source: Author s calculations based on the GTAP database (2007 release) and Baffes (2007), Resources Policy, vol.32, pp. 126-134. Notes: Elasticity estimates are based on OLS regression of nominal prices on oil price, deflator, time trend, annual data, 1960-2005.
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Old versus new oil price equilibrium US$/bbl 120 100 80 60 January 2011 - August 2014 Average price: $104/bbl Volatility: 2.95 December 2014 - August 2017 Average price: $48/bbl Volatility: 5.05 40 20 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Source: World Bank. Note: Weekly data. Volatility is defined as standard deviation of logarithmic changes times 100. Last observation is July 7, 2017.
All commodity prices declined during 2011Q1-2014Q2, but oil Natural rubber Cotton Coal Silver Nickel Copper Palmoil Aluminum Coffee (arabica) Maize Rice Tin Lead Platinum Zinc Soybeans Cocoa Gold Tea Wheat Crude oil -70-60 -50-40 -30-20 -10 0 10 Price change from 2011Q1 to 2014Q2 (percent) Source: World Bank
Downward revisions to EMDE growth Percent 7 Forecast in January of previous year Forecast in January of current year Actual growth 6 6.1 5.4 6.0 5.5 5.4 5.7 5.3 5.5 5 5.0 5.0 4.8 4.3 4 3 2012 2013 2014 2015 Source: World Bank, Global Economic Prospects Notes: EMDE denotes Emerging Markets and Developing Economies.
Unconventional oil production mb/d 10 US shale Canadian oil sands Biofurels 8 6 4 2-2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: International Energy Agency and World Bank
The U.S. shale oil expansion sursprized markets mb/d 13 2015 12 Solid lines: Actual production for the year Diamonds: IEA projection for the year on the specific month 2014 11 10 9 2012 2013 8 2011 7 J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D 2010 2011 2012 2013 2014 2015 Source: International Energy Agency and World Bank Note: U.S. oil output includes biofuels. Solid lines denote annual oil production and diamonds denote IEA projections on the specific month.
Surplus conditions became apparent in 2014Q2 Source: International Energy Agency and World Bank Note: Last observation 2017Q1. mb/d, cumulative changes since 2010Q4 4.5 Iran Libya Syria Yemen United States Net Change 3.0 1.5 0.0-1.5-3.0 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1
Trigger I: Geopolitical concerns dissipate 4.5 Iraq's oil production during 2014 Libya's oil production during 2015 4.0 3.5 0.50 0.36 0.22 0.22 0.22 0.24 0.42 0.53 0.78 0.87 0.69 0.44 3.0 2.5 2.0 1.5 3.09 3.60 3.26 3.32 3.42 3.17 3.15 3.11 3.36 3.32 3.41 3.70 1.0 0.5 0.0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Source: IEA
Trigger II: The U.S. dollar begins appreciating US$/bbl Index, 1973 = 100 120 100 100 Oil price [left] U.S. $ [right] 95 90 80 85 60 80 40 75 20 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Source: World Bank and FRED. Note: Oil refers to WTI and US$ is the trade weighted U.S. dollar index against major currencies, not seasonally adjusted (DTWEXM), both daily frequency. 70
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mb/d 9 Iran, Iraq, and Libya added 2.6 mb/d during Jul 14-Dec 16 Mb/d 8 7 6 5 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Source: International Energy Agency
Oil prices in a longer term perspective US$/bbl, deflated by U.S. CPI (2014 terms) 150 120 90 Prior to 1985/86: (i) Alaska, (ii) North Sea, and (iii) Gulf of Mexico (brought 5 mb/d in the 8 years prior to the collapse, 9% of world total). The real oil price during 1978-86 averaged $82/bbl. Prior to 2014/15: (i) Biofuels, (ii) Canadian oil sands, and (iii) U.S. shale oil (brought 7 mb/d in the decade prior to the collapse, 8% of world total). The real oil price during 2004-14 averaged $92/bbl. OPEC: Changed its policy in both 1986 and 2014. 36-yr average (excluding the 2 spike periods): $29/bbl. 60 1965-2017 average: $48.32/bbl 30 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: World Bank Note: World Bank crude oil average. Last observation is August 2017.
U.S. shale oil: Slow to get out but quick to come back y-o-y monthly changes, thousand bbl 2,000 The plunge begins 1,500 1,000 IEA Forecast 500 0-500 -1,000 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Source: International Energy Agency. Notes: U.S. crude oil production. Last actual observation is August 2017. September 2017 to December 2018 is forecast.
It only takes 3 months for active drilling to respond Source: Baker Hughes, Bloomberg, and World Bank. Note: Weekly data, last observation is September 1, 2017. US$/bbl 150 Rig count 1,800 120 Oil price, WTI [LHS] 1,500 90 60 30 Rig count [RHS] 1,200 900 600 300 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 0
There have been large productivity increases in shale oil b/d per well 1,600 1,400 Bakken Eagle Ford Niobrara Utica Permian 1,200 1,000 800 600 400 200 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Rystad Energy NASWellCube Premium.
The costs of shale oil production ha gone down US$/bbl 90 80 Range Average US Shale 70 60 50 40 30 20 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 Source: Rystad Energy NASWellCube Premium. Note: Does not include test activity, where well was shut-down after completion. Last observation is 2017Q2.
Evolution of Consensus on Brent before/after December 2016 US$/bbl 70 2018 2019 2020 67 64 61 58 55 Red diamonds: Price forecast reported prior to the December 2016 announcement of the OPEC/non-OPEC cuts. Blue diamonds: Price forecast reported after the December 2016 announcement of the OPEC/non-OPEC cuts. Horizontal lines: Forecasts averaged over the specific year. J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M 2016-17 2016-17 2016-17 Source: Consensus Economics and World Bank. Note: Median Brent oil price forecasts reported from June 2016 through May 2017 for 2018, 2019, and 2020.
Evolution of Consensus on Brent before/after November 2014 US$/bbl 110 2016 2017 2018 100 90 80 70 60 Red diamonds: Price forecast reported prior to the November 2014 OPEC s disengagement. Blue diamonds: Price forecast reported after the November 2014 OPEC s disengagement. Horizontal lines: Forecasts averaged over the specific year (illustration purposes only). 50 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug 2014-15 2014-15 2014-15 Source: Consensus Economics and World Bank. Note: Median Brent oil price forecasts reported from February 2014 through August 2015 for 2016, 2017, and 2018.
U.S. oil announcements drive prices more than other events May 4 Inventory buildup May 15 Cut extension announcement May 19 Expectations of deeper cut May 22 Manchester attack May 25 OPEC meeting May 31 Surging U.S. oil imports June 1 U.S. withdraws from Paris June 3 London attack June 5 Qatar isolation June 7 Inventory buildup June 7 Iran attack June 8 UK election June 14, 21 Inventory buildup Blue bars denote increases and red bars denote declines in oil price (from the previous trading day). Arrows point to oil price changes in excess of $ 1/bbl. Source: Bloomberg, US Energy Information Administration, World Bank, and various media sources. Notes: Price refers to the World Bank average
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The oil price plunge brought energy prices closer together US$/mmbtu 25 20 Crude oil (World Bank average) 15 10 5 Natural gas (U.S.) Coal (Australia) 0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: World Bank. Note: Last observation is August 2017.
Natural gas prices follow suit US$/mmbtu 20 15 Japan (LNG) 10 Europe 5 0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: World Bank. Note: Last observation is August 2017. U.S.
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Agricultural prices have weakened as well Index, nominal terms, 2010 = 100 140 120 100 80 Beverages Food Raw materials 60 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: World Bank. Note: Last observation is August 2017.
The S/U ratios have recovered relative to their 2006-07 lows Ratio 0.40 0.35 Maize Rice Wheat 0.30 0.25 0.20 0.15 0.10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: U.S. Department of Agriculture. Notes: Update based on the U.S. Department of Agriculture August, 2017 data release.
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Metals prices have picked up $/mt 10,000 Copper [LHS] Iron ore [RHS] $/mt 200 8,000 160 120 6,000 80 4,000 40 2,000 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: World Bank Note: Last observation is August 2017. 0
China is still the key driver of metal consumption Million metric tons 6 5 4 Rest of the world 3 2 China 1 0 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Source: World Bank and World Bureau of Metal Statistics Notes: Last observation is June 2017.
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Where are commodity prices heading? Index, real (2010 = 100) 160 120 Agriculture 80 Metals 40 Energy 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: World Bank. Note: The period 2017-30 refers to forecasts, as of September 2017.
Commodity and global economy forecasts (nominal) 2015 2016 2017F 2018F 2019F Crude oil price ($/bbl) 51 43 52 54 57 Gold price ($/toz) 1,161 1,249 1,250 1,229 1,208 Agriculture index (2010 = 100) 89 89 88 89 91 Metals index (2010 = 100) 67 63 77 76 76 Global growth (%) 2.7 2.4 2.7 2.9 2.9 Emerging economy growth (%) 3.6 3.5 4.1 4.5 4.7 Source: World Bank Note: 2017 onwards denote forecasts.
Iran s emergence after sanctions: Perhaps a downside risk? mb/d 7 Consumption Net Exports 6 5 4 3 2 1 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: BP Statistical Review, International Energy Agency. Note: Production includes crude oil and liquids.
mb/d 4 Venezuela: The (only?) emerging upside price risk Consumption Net Exports 3 2 1 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: BP Statistical Review. Note: Production includes crude oil and liquids.
Oil consumption: History and (2005) prospects mb/d 60 OECD, actual Non-OECD, actual OECD, projected in 2005 Non-OECD, projected in 2005 50 40 30 20 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: International Energy Agency and World Bank. Note: The projection was taken from the 2005 Outlook.
Energy intensity has been declining Oil intensity Energy intensity bbl/$10,000 of GDP 14 12 World OECD Non-OECD 35 30 bbl of oil equivalent/$10,000 of GDP World OECD Non-OECD 10 25 8 20 6 15 4 10 2 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: BP Statistical Review and World Bank. 5 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
China s and India s share of global commodity consumption Source: World Bank, BP Statistical Review of World Energy, World Bureau of Metals Statistics, U.S. Department of Agriculture China India Crude oil 3.7 12.5 Crude oil 4.4 1.9 Coal 24.8 50.5 Coal 5.2 10.5 Iron ore 8.6 49.4 Iron ore 5.4 1.9 Base metals 5.7 50.4 Base metals 3.0 1.8 Grains 21.8 22.6 Grains 9.7 9.9 Edible oils 11.3 22.2 Edible oils 9.3 13.5 Population GDP 2.4 12.0 18.7 21.4 2014-16 1990-92 Population GDP 3.0 1.2 17.8 16.5 2014-16 1990-92 - 15 30 45 60 Share of world total (percent) - 15 30 45 60 Share of world total (percent)