Commodities  |  JANUARY 27, 2016 9:05AM

World Banks lowers oil price forecasts

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oil price fall down generic 03The World Bank has lowered its 2016 forecast for oil prices to US$37 per barrel from US$51 per barrel in its October projections, according to the bank’s latest Commodity Markets Outlook.

The lower forecast reflects a number of supply and demand factors, Azerbaijan’s Trend news agency reported the World Bank as saying.

These include sooner-than-anticipated resumption of exports by Iran, greater resilience in US production due to cost cuts and efficiency gains, a mild winter in the Northern Hemisphere, and weak growth prospects in major emerging market economies.

Oil prices fell by 47% in 2015 and bank expects them to decline, on an annual average, by another 27% in 2016.

However, from the current lows, a gradual recovery in oil prices is expected over the course of the year, for several reasons, the bank’s report said.

“First, the sharp oil price drop in early 2016 does not appear fully warranted by fundamental drivers of oil demand and supply, and is likely to partly reverse.

“Second, high-cost oil producers are expected to sustain persistent losses and increasingly make production cuts that are likely to outweigh any additional capacity coming to the market. Third, demand is expected to strengthen somewhat with a modest pickup in global growth,” the report said.

The anticipated oil price recovery is forecast to be smaller than the rebounds that followed sharp drops in 2008, 1998, and 1986. The price outlook remains subject to considerable downside risks, the World Bank believes.

“Low prices for oil and commodities are likely to be with us for some time,” said John Baffes, senior economist and lead author of the Commodities Markets Outlook said.

“While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain,” according to Baffes.

Brent crude oil prices averaged US$52 a barrel in 2015, down US$47 a barrel from the average in 2014, as growth in global liquids inventories put downward pressure on Brent prices throughout much of the year, according to the US Energy Information Administration’s (EIA) esimates.

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