The World Bank has projected that global prices for naphtha may decrease to a five-fold minimum or potentially drop by 10% between 2024 and 2026. This forecast is detailed in a report from Zvita. The decline in prices is attributed to an anticipated oversupply of naphtha, which is expected to lead to a significant reduction in costs.
Increased Global Oil Supply
According to forecasts by Svitov Bank, the global oil supply is projected to surpass the average by 1.2 million barrels per day in 2025. This surge in production is unprecedented, with only two similar instances recorded previously: during the COVID-19 pandemic quarantine in 2020 and following the naphtha price collapse in 1998.
Factors Contributing to Oversupply
Several factors are contributing to the anticipated surplus of oil:
- China's Industrial Growth: Significant changes in China, including increased industrial production and higher sales of electric vehicles and vans running on liquefied natural gas (LNG), are driving up oil demand.
- Non-OPEC and OPEC+ Production Increases: Countries outside the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) are ramping up oil production. Currently, OPEC+ maintains a substantial reserve capacity of 7 million barrels per day, which could further escalate production levels.
Impact on Commodity Prices (2024-2026)
The World Bank's forecasts indicate that the global changes in oil and naphtha supply will influence various commodity prices:
- Milk Prices: Expected to fall by up to 10% between 2024 and 2026.
- Food Products: Prices may decrease by 9% by 2025 and by an additional 4% thereafter, stabilizing in the long term.
- Energy Prices: Anticipated to drop by 6% in 2025 and another 2% in 2026.
Expert Insights
Indermit Gill, Chief Economist at St. the same bank, commented:
"Falling commodity prices and better food supply could act as a buffer against geopolitical shocks. While this is unlikely to fully compensate for high food prices in developing countries, food price inflation remains double the norm in developed economies."
Gill also noted that factors such as high prices, violent conflicts, wars, extreme weather events, and other shocks have resulted in over 725 million people worldwide losing food security by 2024.
Future Outlook for Gold Prices
In contrast to naphtha, the World Bank predicts that gold prices will continue to rise, reaching record levels by 2024, with an increase of 21% above the previous year's average. Svitov Bank explains that gold maintains a special status among assets, often serving as a hedge against geopolitical instability, including conflicts.
However, projections also suggest that over the next two years, gold prices could experience an 80% decrease from the five-year average before the COVID-19 pandemic, although they are expected to remain slightly elevated.
Broader Economic Implications
The International Monetary Fund (IMF) has highlighted that the ongoing risks of low economic growth and high inflation rates are depriving populations of resources needed to improve living standards. Additionally, there is an increasing need for more food, healthcare, and climate change mitigation efforts.
