Outline

Outline

1.11.3

2.02.3

1.6

2.2 2.3

1.91.7

4.9 5.0

4.3

3.7 3.7

4.44.6 4.7 4.7

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017E 2018F 2019F 2020F

Advanced economies Emerging and developing economies

Growth is picking up

Source: World Bank, Global Economic ProspectsNotes: E denotes estimate and F denotes forecast as of January 2018.

Percent

Most commodity prices are recovering, albeit very slowly

30

60

90

120

150

180

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Index, nominal terms, 2010 = 100

Post-recession peak 2011:Q1

Post-recession trough2016:Q1

Source: World BankNote: Last observation is April 2018.

Energy

Agriculture

Metals

Prices are much higher than the 1985-2004 average

0

40

80

120

160

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015Source: World Bank.

Agriculture

Metals

Energy

Index, constant US$ (2010 = 100)

Changes (%) in real prices to 2017 from:1986-2004 1998

Agriculture: +33 +31Energy: +101 +202Metals: +70 +101

Outline

20

40

60

80

100

120

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

The equilibrium of the oil price changed after 2004

Source: World Bank.Note: Weekly data. Volatility is defined as standard deviation of logarithmic changes times 100. Last observation is March 16, 2018.

US$/bbl

January 2011 - August 2014Average price: $104/bbl

Volatility: 2.95

December 2014 – March 2018Average price: $50.24/bbl

Volatility: 4.71

Oil prices are just above their long-term average

Source: World Bank.Note: World Bank average. Last observation is March 2018.

0

30

60

90

120

150

1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

US$/bbl, deflated by U.S. CPI (Jan 2017 terms)

1972-2018 average: $56/bbl

Two price cycles after WWII1972 to 1986: Supply driven-cycle associated with oil supply

disruption and major downturn in the global economy. High prices induced production from “unconventional” sources, including Alaska, Gulf of Mexico, and North Sea.

2003 to 2014: Demand-driven cycle with no disruption in the global economy (during the spike) or boost to the global economy (during the collapse). High prices induced production from “unconventional” sources, including US shale, Canadian oil sands, and biofuels.

20

30

40

50

60

70

80

90

2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1

US$/bbl

Range across regions Average

Source: Rystad Energy NASWellCube Premium. Note: Does not include test activity, where well was shut-down after completion. Last observation is 2017Q2.

The costs of shale oil have gone down

0

300

600

900

1,200

1,500

1,800

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

b/d per well

Range across regions Median

Source: U.S. Energy Information Agency.Notes: Range and median are based on five regions (Bakken, Eagle Ford, Niobrara, and Permian). Last observation is March 2018.

U.S. shale well productivity has increased

-3

-1

1

3

5

Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18

Agreement countries Non-Agreement countries Net change Agreed cuts

Cumulative change in oil production since September 2016

Source: International Energy AgencyNote: Bars denote change in oil production relative to September 2016, when the OPEC/non-OPEC cuts were first discussed. The cuts of 1.8 mb/d became effective in January 2017. Last observation is February 2018.

mb/d

Energy prices are closer together

0

5

10

15

20

25

Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18

US$/mmbtu

Source: World Bank.Note: Last observation is March 2018.

Coal (Australia)

Natural gas (U.S.)

Crude oil (World Bank average)

Natural gas prices are closer

Source: World Bank.Note: Last observation is March 2018.

0

5

10

15

20

Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18

US$/mmbtu

Japan (LNG)

Europe

U.S.

Outline

Some metals prices are picking up

0

50

100

150

200

2,000

4,000

6,000

8,000

10,000

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Copper [left] Iron ore [right]

$/mt $/mt

Source: World BankNote: Last observation is March 2018.

5,000

10,000

15,000

20,000

25,000

30,000

1,200

1,600

2,000

2,400

2,800

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Aluminum [LHS]

$/mt $/mt

China dominates metal consumption

Source: World Bank and World Bureau of Metal StatisticsNotes: Last observation is December 2017.

0

1

2

3

4

5

6

Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Million metric tons

Rest of the world

China

Outline

Agricultural prices have been stable for more than 3 years

60

80

100

120

140

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Index, nominal terms, 2010 = 100

Source: World Bank.Note: Last observation is March 2018.

Remarkably stable agricultural commodity pricesFood

Raw materials

Beverages

Stock-to-use ratios of key grains have recovered

0.10

0.15

0.20

0.25

0.30

0.35

0.40

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Maize Rice Wheat

Source: U.S. Department of Agriculture.Notes: Update based on the U.S. Department of Agriculture March 8, 2018 data release.

Ratio

Outline

Where are commodity prices heading?

0

40

80

120

160

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Source: World Bank.Note: The period 2018-30 refers to forecasts, as of April 2018.

Agriculture

Metals

Energy

Index, real (2010 = 100)

Forecasts as of April 2018

20

30

40

50

60

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

OECD, actual Non-OECD, actualOECD, projected in 2005 Non-OECD, projected in 2005

History of oil consumption and prospects—as envisaged in 2005

Source: International Energy Agency and World Bank.Note: The projection was taken from the 2005 IEA World Energy Outlook.

mb/d

50

60

70

80

90

100

110

120

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

World World excl. China

Index, 1995=100

China has reversed the global metals intensity

Source: World Bureau of Metal Statistics.

2

4

6

8

10

12

14

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

World OECD Non-OECD

Oil and energy intensity of GDP have been declining

Source: BP Statistical Review and World Bank.

Barrels of oil per $10,000 of GDP

5

10

15

20

25

30

35

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

World OECD Non-OECD

Barrels of oil equivalent per $10,000 of GDP

Oil Energy

Consumption against income in per capita terms

Source: BP Statistical Review and World Bank.Note: Consumption per capita vs. GDP per capita (1965-2016).

Oil Natural gas

0

1

2

3

4

0 10,000 20,000 30,000 40,000 50,000

EM7 ex China China

G7 South Korea

tons of oil per capita

GDP per capita

0.0

0.5

1.0

1.5

2.0

0 10,000 20,000 30,000 40,000 50,000

EM7 ex China

China

G7

South Korea

tons of oil equivalent per capita

GDP per capita

Consumption against income in per capita terms

Source: BP Statistical Review and World Bank.Note: Consumption per capita vs. GDP per capita (1965-2016).

Coal Aluminum

0.0

0.5

1.0

1.5

2.0

0 10,000 20,000 30,000 40,000 50,000

EM7 ex China China

G7 South Korea

ton of oil equivalent per capita

GDP per capita

0

5

10

15

20

25

30

35

0 10,000 20,000 30,000 40,000 50,000

EM7 ex China China

G7 South Korea

kg per capita

GDP per capita

Consumption against income in per capita terms

Source: BP Statistical Review and World Bank.Note: Consumption per capita vs. GDP per capita (1965-2016).

Copper Zinc

0

5

10

15

20

25

0 10,000 20,000 30,000 40,000 50,000

EM7 ex China China

G7 South Korea

kg per capita

GDP per capita

0

2

4

6

8

10

12

14

0 10,000 20,000 30,000 40,000 50,000

EM7 ex China China

G7 South Korea

kg per capita

GDP per capita

-

1

2

3

4

5

6

7

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Consumption Net Exportsmb/d

Iran’s oil production

Source: BP Statistical Review, International Energy Agency.Note: Production includes crude oil and liquids.

0

1

2

3

4

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Consumption Net Exports

Venezuela’s oil production

Source: BP Statistical Review.Note: Production includes crude oil and liquids.

mb/d

-4.3

-5.6

-4.1

-4.3

-2.3

-1.5

-0.9

-6 -5 -4 -3 -2 -1 0

Arab oil embargo

Iranian revolution

Iran-Iraq war

Kuwait invasion

Iraq war

Libyan civil war

Sanctions on Iran

Oct 1973 – Mar 1974

Nov 1978 – Apr 1979

Oct 1980 – Jan 1981

Aug 1990 – Jan 1991

Mar – Dec 2003

Nov 2011 – Oct 2012

Conflict-driven oil supply reductions in historical context

mb/dSource: International Energy Agency and World Bank

Feb – Oct 2011

US oil production exceeded its 1970 record of 10 mb/d

Source: U.S. Energy Information Administration

3.0

5.0

7.0

9.0

11.0

Jan-70 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Jan-18

Mb/d

U.S. shale boom

49%

20%

30%

40%

50%

60%

70%

1970-74 1975-79 1980-84 1985-89 1990-94 1995-99 2000-04 2005-09 2010-15 2017

Non-OPEC oil producers that agreed to cutsOPEC oil producers

OPEC’s role in the global oil market

Source: BP Statistical Review and International Energy AgencyNotes: Columns denote 5-year averages, except the last which refers to 2017.

Shares of global oil production

OPEC today

POWER: It is less powerful compared to the 1970s. It asked for “assistance” from key non-OPEC producers to make the cuts effective.

COHERENCE: It appears to be less coherent compared to the past because of: (i) political fractions within and (ii) some members cannot “afford” supply cuts.

COMPETITION: Commodity agreements have a poor record. They are successful initially, but non-members gain market share and eventually become efficient suppliers. A case in point is the U.S. shale oil industry, now acting as a counterweight to OPEC. A historical example is the International Coffee Agreement.

SUBSTITUTION: Agreement-induced supply cuts make substitute (natural or synthetic) products more competitive. A historical example is the International Tin Agreement whose supply cuts made aluminum competitive.

OPEC today

POWER: It is less powerful compared to the 1970s. It asked for “assistance” from key non-OPEC producers to make the cuts effective.

COHERENCE: It appears to be less coherent compared to the past because of: (i) political fractions within and (ii) some members cannot “afford” supply cuts.

COMPETITION: Commodity agreements have a poor record. They are successful initially, but non-members gain market share and eventually become efficient suppliers. A case in point is the U.S. shale oil industry, now acting as a counterweight to OPEC. A historical example is the International Coffee Agreement.

SUBSTITUTION: Agreement-induced supply cuts make substitute (natural or synthetic) products more competitive. A historical example is the International Tin Agreement whose supply cuts made aluminum competitive.

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17

OECD China ROW

Signs of slowdown in China’s metal consumption

Source: World Metal StatisticsNotes: Last observation is December 2017

mmt, year-on-year change

50

80

110

140

170

200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Agriculture price index ENSO Index peaks

Index, deflated by U.S. CPI, January 2010 = 100

-12.6%-19.6%

1.4%-2.9%

-0.9%-2.2%

-6.5%-7.3%

10.4%9.8%

3.8%-3.5%

-7.1%-14.8%

Agricultural prices show little correlation with weather cycles

Source: World Bank and National Oceanic Atmospheric Administration.Note: The numbers denote percent changes of the six-month average leading to the ENSO peak compared to the previous six-month period (bold) and the corresponding six-month period of the previous year (italic). The last observation is February 2018.

The strongest El Niño on record, 1997/98

2.4

21.4

11.3

22.6

5.7

8.6

24.8

3.7

12.0

18.7

22.2

21.8

50.4

49.4

50.5

12.5

- 15 30 45 60

GDP

Population

Edible oils

Grains

Base metals

Iron ore

Coal

Crude oil

Share of world total (percent)

2014-16

1990-92

Could India become the next China?

Source: World Bank, BP Statistical Review of World Energy, World Bureau of Metals Statistics, U.S. Department of Agriculture

1.2

16.5

9.3

9.9

1.8

1.9

5.2

1.9

3.0

17.8

13.5

9.7

3.0

5.4

10.5

4.4

- 15 30 45 60

GDP

Population

Edible oils

Grains

Base metals

Iron ore

Coal

Crude oil

Share of world total (percent)

2014-16

1990-92

China India