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Dive brief:
- According to a new report by the World Bank, global oil prices could experience significant increases if the war between Israel and Hamas escalates.
- Although the the effects of conflict on global commodity markets have been limited so far, a prolonged or extended war could push oil prices up as much as 75% to between $140 and $157 a barrel, according to the bank’s Commodity Markets Outlook report. Global oil prices have risen by around 6% since the start of the conflict, according to the World Bank, but the cost of most other commodities has “barely increased”.
- The bank said prolonged turmoil could “push global commodity markets into uncharted waters.” Absent a protracted war, the bank said it expects global oil prices to average $90 a barrel in the fourth quarter and fall to an average of $81 in 2024.
Diving knowledge:
Construction experts and contractors keep a close eye on the price of supplies and materials such as diesel and gasoline.
“Diesel prices affect construction more than most other industries,” said Ken Simonson, chief economist for the Associated General Contractors of America. “Some contractors use a lot of fuel to power trucks and equipment, especially for earthmoving.”
Over the past two years, diesel prices have been volatile, hitting an all-time high in June 2022 following Russia’s invasion of Ukraine, then falling 18.6% between September 2022 and September of 2023. Now prices are on the rise again, rising 32.9% from July to August. and 4.3% from August to September.
Contractors pay directly through fuel surcharges or embedded in transportation bills for equipment and material deliveries and the transportation of dirt, debris and equipment from job sites, Simonson said, noting that many of the materials used in construction require a lot of energy, a lot. of it from the oil, to the extraction, grinding, manufacturing and mixing of ingredients.
“Some state DOTs allow highway contractors to pass on a portion of diesel or asphalt price increases,” he said. “But otherwise contractors are exposed to price risk.”
Unlikely scenario
While the Middle East conflict is a risk factor for U.S. contractors, crude oil prices are currently around $80 a barrel, said Anirban Basu, chief economist at Associated Builders and contractors Unless there is a significant escalation of the war, it is unlikely that gasoline prices will approach the levels seen in mid-2022, he told Construction Dive.
“In the unlikely scenario that gasoline prices return to record levels, it would represent a headwind for the construction industry,” he said.
Construction input prices have been relatively flat over the past year, but continue to rise more than 40% since the start of the COVID-19 pandemic. That inflation, along with sky-high borrowing costs, has reduced the number of projects that can secure financing, Basu said.
“If gas prices, or more shockingly, diesel prices, were to rise, it would increase the cost of providing construction services and ultimately reduce construction activity,” he said.
The latest conflict in the Middle East, which began on October 7, comes on the heels of the war between Russia and Ukraine, which has had disruptive effects on the global economy since it began in February 2022, according to Indermit Gill, head of the World Bank. economist and senior vice president of development economics.
“If the [Mideast] If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades, not only over the war in Ukraine but also over the Middle East,” he said in a statement announcing the report .
