The rising trend in oil prices is positive as it will remove job uncertainty of Bangladeshi workers abroad, economists say
Almost all commodity prices on the global market recovered in the third quarter of the current year – following steep declines earlier due to the Covid-19 pandemic – while crude oil prices have doubled since April, according to the latest report of the World Bank.
The October issue of the Commodity Markets Outlook titled "Persistence of Commodity Shocks" reveals that energy prices increased by 33.9% in the July-September quarter compared to the previous quarter.
The report published by the World Bank, on its website, said crude oil prices almost doubled to an average of $40 per barrel in September from their low of $21 per barrel in April, supported by sharp supply cuts by OPEC+.
Despite the impact of Covid-19, the average prices of non-energy items, agricultural products, beverage, food, oil, grains, and precious metals will be higher in 2020 than in 2019, the report forecasts.
Non-energy prices rose by 9.6% in the third quarter of this year, with increases in almost all commodities, it says, adding that average prices of agricultural products increased by 5.7%, oils and meals by 14.3%, fertiliser 7.1%, metals and minerals 19.5%, and crude oil by 38.8%, during the same time.
The World Bank report reveals that even though energy prices rebounded by one-third in the third quarter of this year, prices remain nearly one-third lower than their pre-pandemic levels.
Natural gas prices also rose sharply in the third quarter, while coal prices were broadly stable.
It also finds that a robust recovery in China has led to a surge in consumption of metals, while consumption in advanced economies has proved resilient.
Precious metal prices also rose sharply, boosted by the depreciation in the US dollar and lower interest rates.
Agricultural commodity prices rose by 6%, but with divergence between broadly stable grain prices and rising prices of other agricultural commodities.
Ayhan Kose, World Bank Group acting vice president for Equitable Growth, Finance and Institutions and director for the Prospects Group, said the impact of Covid-19 on commodities has been uneven, and it could have lasting effects for energy markets.
"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," he added.
Forecast of further rebound in 2021
The World Bank anticipates a sizeable rebound of the global commodity prices in 2021, while energy prices are projected to see a 9.3% increase.
Non-energy prices have been projected to see a modest increase by 1.1% in 2020 as a small fall in metal prices is offset by an increase in prices of agricultural commodities.
Prices of non-energy items are forecast to increase by 1.7% in 2021, supported by a 2.1% rise in metal prices.
Major challenges ahead
Agricultural products are expected to see their average price rise slightly in 2021, following a projected 3% increase in 2020, read the report.
The World Bank has expressed concerns over food insecurity in several emerging markets and developing economies due to price hikes and lower production amid the pandemic.
By lowering income, the pandemic has created bottlenecks in food availability at the local level due to supply chain disruptions and border closures that have restricted food flows and movements of labour, reads the report.
It adds that food prices have spiked in several countries, especially in South and East Asia.
The report sees a prolonged pandemic situation and the second wave of Covid-19 in some countries as the major challenge for the global commodity market in the way to recovery.
The severity of the pandemic could lead to renewed lockdowns, dampening economic growth and reducing travel, it says, adding this would affect demand for oil significantly, more than other commodities.
What is there for Bangladesh
Economists see signs of a recovery in the global economy with the rise in prices of crude oil, minerals and metals.
Pointing at that mills and factories are reopening all over the world, they say this will lead to a rise in the income of people around the world.
At the same time, they hope the job uncertainty looming over the Bangladeshi migrant workers will come to an end and exports will increase.
Economist Ahsan H Mansur said the rising trend in oil prices is positive.
"Most of the Bangladeshi expatriate workers are working in oil-producing countries. Workers were in uncertainty as government spending was cut in those countries in the wake of revenue shortfalls caused by a fall in oil prices. The uncertainty over jobs has decreased as oil prices have recovered to some extent," he explained.
He, however, predicted that it would take a few more years for oil prices to return to normal. "The oil-producing countries will mostly go through contraction during this period. In this situation, it will take a few years for the expatriate income to be completely risk-free," he argued.
Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said the growing demand for energy, minerals and metals is a positive sign for the world's economy.
Prices of and demand for fuels and commodities have increased due to the reopening of factories and commodity transport systems.
Many Middle-eastern countries have already fully reopened their economies, he mentioned, adding that this will at least remove the existing employment uncertainty of the expatriate workers, even if there is no significant increase in opportunities to send new workers.