The World Bank has forecast energy prices to rise by about 50% in 2022 compared to last year. Prices are expected to remain elevated for longer than previously anticipated, it said.
The war in Ukraine has dealt a major shock to commodity markets, altering global patterns of trade, production, and consumption in ways that will keep prices at historically high levels through the end of 2024, the World Bank said in its latest Commodity Markets Outlook report.
"We are expecting energy prices to go up by 50% in 2022 compared to last year. So, a large increase. And particularly in the case of crude oil, the price for Brent crude oil, the international benchmark is expected to average at $100 a barrel this year. And that would be at the highest level since 2013," Peter Nagle, Senior economist at the World Bank, said.
"We expect prices to decline a bit in 2023 and 2024, but they are expected to remain much higher than previously anticipated. Now in the case of natural gas, we are actually expecting prices to double in 2022 compared to last year, he added.
Brent crude futures were up 7 cents at $117.7 a barrel on Friday.
A decision on Thursday by the OPEC+ to increase output by 648,000 barrels per day (bpd) in July and August, instead of by 432,000 bpd as previously agreed, was seen as hardly enough for a tight market, Reuters reported.
If the Russia-Ukraine war prolongs or additional sanctions are imposed on Russia, prices could be even higher and more volatile than currently projected, according to the World Bank outlook.
“Overall, this amounts to the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel and fertilizers,” said Indermit Gill, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions.
“Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine,” said Ayhan Kose, Director of the World Bank’s Prospects Group, which produces the Outlook report.
“The resulting increase in food and energy prices is taking a significant human and economic toll—and it will likely stall progress in reducing poverty. Higher commodity prices exacerbate already elevated inflationary pressures around the world.”
The report urges policymakers to act promptly to minimize harm to their citizens, and to the global economy.
"A key priority should be to invest in energy efficiency, including weatherization of buildings," the report noted.
It also calls on countries to accelerate the development of zero-carbon sources of energy such as renewables.
(Writing by Seban Scaria firstname.lastname@example.org ; editing by Daniel Luiz)