Oil, metals prices set to rise amid trade tensions: World Bank

The World Bank raised its forecast for oil prices to an average of US$65 a barrel this year and next, up from US$53 last year, partly due to "mounting geopolitical risk." (AFP/KAREN BLEIER)

The World Bank raised its forecast for oil prices to an average of US$65 a barrel this year and next, up from US$53 last year, partly due to "mounting geopolitical risk."

Metals prices are expected to increase nine per cent in 2018 and while agricultural prices are expected to gain two percent in both cases impacted by the US-China trade dispute, the report said.

The World Bank cautioned that "policy actions currently under discussion, such as additional tariffs, production cuts, and sanctions, present risks to the short-term outlook."

The continued global economic recovery, with growth increasing to 3.1 per cent last year and expected to go higher this year, has fuelled oil prices, which surged 10 per cent in the first quarter.

Rising geopolitical concerns, especially about prospects for renewed sanctions on Iran, and tensions between Iran and Saudi Arabia in Yemen, also bolstered prices in March. They rose to US$74 per barrel in April, the report noted.

"Oil prices have more than doubled since bottoming in early 2016, as the large overhang of inventories has been reduced significantly," said John Baffes, World Bank senior economist and lead author of the report.

Production has been held back as well, which also boosts prices, including output curbs by OPEC and non-OPEC exporters as well as steps by China to reduce polluting metals and energy production.

"Strong oil demand and greater compliance by the OPEC and non-OPEC producers with their agreed output pledges helped tip the market into deficit," Baffes said.

The trade tensions between the United States and China - ignited when US President Donald Trump imposed steep tariffs on steel and aluminium imports last month - weighed on all metals prices.

Aluminium prices subsequently surged to a seven-year high following US sanctions on the largest Russian aluminium producer which accounts for more than six percent of global supply, the report said.

Nickel prices also rose amid fears that sanctions could be extended to other Russian producers since the country produces nine per cent of global nickel stocks.