World Bank – Commodity Prices to Hit Six-Year Low in 2026 as Oil Glut Expands.

“Inflationary Pressures Ease, But Geopolitical Tensions Cloud Outlook”

Oct 2025 : Global commodity prices are projected to fall to their lowest level in six years in 2026, marking the fourth consecutive year of decline, according to the World Bank Group’s latest Commodity Markets Outlook. Prices are forecast to drop by 7% in both 2025 and 2026, driven by weak global economic growth, a growing oil surplus, and persistent policy uncertainty.

Falling energy prices are helping to ease global inflation, while lower rice and wheat prices have helped make food more affordable in some developing countries. Despite the recent declines, however, commodity prices remain above pre-pandemic levels, with prices in 2025 and 2026 projected to be 23% and 14% higher, respectively, than in 2019.

Commodity markets are helping to stabilise the global economy, as asserted by Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics. At the same time, falling energy prices have contributed to the decline in global consumer-price inflation. But this respite will not last. Governments should use it to get their fiscal house in order, make economies business-ready, and accelerate trade and investment.

The global oil supply has expanded significantly in 2025 and is expected to rise next year to 65% above the most recent high, in 2020. Oil demand is growing more slowly as demand for electric and hybrid vehicles grows and oil consumption stagnates in China. Brent crude oil prices are forecast to fall from an average of $68 in 2025 to $60 in 2026, which is a five years low. Overall, energy prices are forecast to fall by 12% in 2025 and a further 10% in 2026.

The oil price forecast envisages a continued slowdown in oil consumption growth, reflecting very weak demand growth in China, continued rapid adoption of electric and hybrid vehicles, and a further rise in global oil supply. Excess supply in the global oil market has expanded significantly in 2025 and is

expected to rise next year to 65 percent above the most recent high, in 2020.

Similarly, natural gas prices in the United States, Europe, and Asia are expected to diverge during the

forecast period. After surging by an estimated 60% in 2025, mainly owing to a sharp increase in LNG imports from Europe, the U.S. benchmark price is projected to rise by a further 11% in 2026, before holding steady in 2027. Alongside, the European benchmark price is expected to rise by 10% in 2025 but decline by about 11% in 2026 and 9% in 2027, as plans for the European Union to phase out purchases of natural gas from Russia proceed. The benchmark LNG price in Japan is also projected to decline in 2026 and 2027, on growing global LNG production.

After falling by an estimated 21% in 2025 (YOY), the Australian benchmark coal price is anticipated to fall by a further 7% in 2026. This forecast reflects expectations of subdued global growth, adequate supply conditions, and rising diffusion of renewable energy sources.

Food prices are also easing, with declines of 6.1% projected in 2025 and 0.3% in 2026. Soybean prices are falling in 2025 because of record production and trade tensions between the United States and China, as China is the largest importer of US Soybean, but are expected to stabilise over the next two years. Meanwhile, coffee and cocoa prices are forecast to fall in 2026 as supply conditions improve.

Alongside, fertiliser prices are projected to surge 21% in 2025, reflecting higher input costs and trade restrictions, before easing 5% in 2026. These increases are likely to further erode farmers’ profit margins and raise concerns about future crop yields.

U.S. monetary easing, and heightened policy uncertainty, reinforced by a weaker U.S. dollar. Silver prices have also risen to record levels, reflecting the metal’s dual roles as a safe haven asset and a key input in fast-growing renewable energy applications. Geopolitical uncertainty and a weakening U.S. dollar were also factors behind the last major surge in gold prices, in 1979-80, but a distinguishing feature of the current rally is the unprecedented pace of gold purchases by central banks. Precious metals have reached record highs in 2025, fueled by demand for safe-haven assets and continued central bank purchases. The price of gold, widely viewed as a safe haven during times of economic uncertainty, is experienced to have increased by 42% in 2025. It is projected to increase by a further 5% next year, leaving gold prices at nearly double their 2015-2019 average. Silver prices are also expected to hit a record annual average in 2025, rising by 34% and further 8% in 2026.

Commodity prices could fall more than expected during the forecast horizon if global growth remains sluggish amid prolonged trade tensions and policy uncertainty. Greater-than-expected oil output from OPEC+ could deepen the oil glut and exert additional downward pressure on energy prices. Electric-vehicle sales, which are expected to increase sharply by 2030, could further depress oil demand.

Conversely, geopolitical tensions and conflicts could push oil prices higher and boost demand for safe-haven commodities such as gold and silver. In the case of oil, the market impact of additional sanctions could also lift prices above the baseline forecast. Extreme weather from a stronger than expected La Niña cycle could disrupt agricultural output and increase electricity demand for heating and cooling, adding further pressure to food and energy prices.

Meanwhile, the rapid expansion of artificial intelligence (AI) and growing electricity demand to power data centers could raise prices for energy and for base metals like aluminum and copper, which are essential for AI infrastructure.

Lower oil prices provide a timely opportunity for developing economies to advance fiscal reforms that promote growth & job creation, as affirmed by Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. According to him, phasing out costly fuel subsidies can free up resources for infrastructure and human capital, areas that create jobs and strengthen long-term productivity. Such reforms would help shift spending from consumption to investment, rebuilding fiscal space while supporting more durable job creation.

The report’s special focus section examines the history of international commodity agreements in the context of today’s volatile commodity markets. It finds that while many past efforts, such as inventory controls, production quotas, and trade restrictions have helped in stabilising prices for some commodities in the short term, few achieved lasting results.

Consumer price inflation has fallen closer to central bank targets in most countries over the past year. However, in recent months, it has flattened or even edged up in some advanced economies, while continuing to recede in emerging market and developing economies (EMDEs).

Commodity price movements have supported disinflation since 2023, with decreases in energy prices, in particular, exerting downward pressure both directly through consumer energy costs and indirectly through their impact on goods prices. In the baseline forecast, energy price movements will help reduce consumer price inflation in 2026, shaving about 0.2 percentage point from global inflation in 2026, slightly less than the 0.3 percentage point estimated for 2025.

The most enduring international commodity agreement, the Organization of the Petroleum Exporting Countries (OPEC), has struggled to sustain market power especially when prices are high because higher prices tend to draw new competitors into the market. Instead of using price control schemes, the report recommends that countries foster more diverse and efficient production, in the form of

• investing in technology and innovation,

• improving data transparency,

• promoting market-based pricing to build long-term resilience to price volatility.

Suvro Sanyal – Team Maverick