World bank report predicts Climate Change as growing risk to energy markets

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The World Bank recently published its Commodity Markets Outlook Report. It says that, in the third quarter of 2021, energy prices surged at 16 %, while non-energy prices remained stable. Agriculture, fertilizers, and precious metals are about one-third higher among the four major non-energy indexes, while metals and minerals are roughly half higher than pre-pandemic levels.

The report cites that “The fluctuations in commodity prices this year highlight some of the challenges in transitioning to a zero-carbon economy.” It says that the cities account for around two-thirds of energy demand and greenhouse gas emissions and urbanization is associated with increased commodity demand. The report also calls out the need for strategic urban planning to minimize the impact of future urbanization on commodity demand. 

“High commodity prices, if sustained, could slow growth in energy importing countries and exacerbate food insecurity in low-income countries.”

Commodity Markets Outlook Report

As per the statistics, Crude oil prices averaged $72/bbl with an increase of 7 percent on the previous quarter. Natural gas prices and coal prices increased by 69 percent and 44 percent respectively. The spike is largely due to the economic recovery (particularly in China), which has increased the demand for fossil fuels for energy generation.

According to the report, “The Metals and Minerals Price Index declined 1 percent in the quarter, with drops in iron ore (-17 percent) and copper (-3 percent) and gains in other base metals (9 percent) on average.”

The report attributed that the reason for the steep drop in iron ore prices was driven by China’s reduction in steel production in order to meet zero-growth targets for the year. Demand for base metals has increased as a result of the global economic recovery, but production has been hampered by energy shortages and lockouts.

Forecasting the upcoming trends, the report concluded that natural gas and coal prices are likely to fall next year. Crude oil prices are expected to average $74 per barrel, up from $70 in 2021. Metal prices are expected to drop by 5% in 2022. 

After a 22 percent increase this year, agricultural prices are expected to stabilize in 2022. If commodity prices remain high, growth in energy-importing countries would remain static, and food insecurity in low-income countries will worsen.

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