Global Commodity Prices Set to Fall Through 2026 Amid Historic Oil Glut and Supply Adjustments

The report highlights that despite the projected decline, overall commodity prices will remain around 30% higher than the average during the five years leading up to the COVID-19 pandemic, suggesting that while prices will ease, they will stay elevated compared to historical levels.

Global commodity prices are expected to reach a five-year low in 2025, driven by an unprecedented oil surplus and shifting global demand, according to the World Bank’s latest Commodity Markets Outlook. The report highlights that despite the projected decline, overall commodity prices will remain around 30% higher than the average during the five years leading up to the COVID-19 pandemic, suggesting that while prices will ease, they will stay elevated compared to historical levels.

The global oil supply is expected to exceed demand by approximately 1.2 million barrels per day next year. This surplus is the third-largest of the past three decades, exceeded only during the demand shocks of 2020 and the 1998 oil-price downturn. The main contributors to this oversupply include slower demand growth in China due to industrial deceleration and a shift towards electric vehicles, alongside an expected increase in production from non-OPEC countries. Meanwhile, OPEC+ countries retain significant spare capacity—currently about 7 million barrels per day—providing a strong buffer for the global oil market.

From 2024 through 2026, the World Bank forecasts a near 10% decline in overall commodity prices. Food prices are set to decrease by 9% in 2024 and another 4% in 2025, although they will remain 25% above their pre-pandemic averages. Energy prices are projected to drop by 6% in 2025, followed by an additional 2% decline in 2026. Lower food and energy prices could ease inflationary pressures for central banks worldwide, but regional and political tensions could still pose risks to stability, especially if they disrupt energy and food supplies.

"Falling commodity prices may help stabilize inflation and provide a buffer against geopolitical shocks," said Indermit Gill, World Bank Chief Economist. However, he noted, “in developing nations, food prices remain a critical issue, as high inflation and extreme weather have left more than 725 million people food insecure in 2024.”

In the oil market, the report assesses the potential impacts of Middle Eastern conflicts on oil prices. If the conflict remains stable, Brent crude prices are expected to average $73 per barrel in 2025, the lowest in four years. However, an escalation that reduces global supply by even 2%—similar to supply disruptions seen in the Libyan and Iraqi conflicts—could briefly push Brent prices up to $92 per barrel. Still, with rapid responses from non-affected producers, the World Bank anticipates that any price spike would be short-lived, with prices stabilizing around $84 per barrel in 2025.

Ayhan Kose, Deputy Chief Economist at the World Bank, sees a silver lining for policymakers in developing economies: "The economic resilience we’re seeing opens a rare window for policymakers. Declining commodity prices could support efforts to curb inflation, while providing a chance to reduce fossil-fuel subsidies that strain public finances."

Amid these shifts, gold prices are set to reach an all-time high, climbing 21% above the average in 2023, as investors continue to turn to gold for its “safe haven” status. Over the next two years, gold prices are forecasted to stay roughly 80% higher than the five-year pre-pandemic average, while the price of industrial metals is expected to hold steady, balancing China’s weaker property market with increasing demand for green technology.

The World Bank’s report also features a special analysis of the synchronized nature of commodity price movements during and after the pandemic. The synchronization resulted from both global economic shifts due to COVID-19 and major commodity-specific shocks, including Russia’s invasion of Ukraine, which created inflationary pressures worldwide. Since early 2023, commodity price movements have become less synchronized, providing some relief from the inflationary pressures seen during the pandemic.

Overall, while easing commodity prices signals potential relief, the global economy remains sensitive to geopolitical shocks and climate-induced risks, underscoring the need for strategic economic planning to sustain growth in a complex global environment.