World Bank: Oil prices may re­main be­low US$60

Low price en­vi­ron­ment likely to per­sist un­til 2030

The Star Malaysia - StarBiz - - News - By P. ARUNA aruna@thes­tar.com.my

KUALA LUMPUR: Oil prices may re­main be­low US$60 per bar­rel for the long term, per­sist­ing at th­ese lev­els un­til 2030, ac­cord­ing to fore­casts from the World Bank.

Ac­cord­ing to its se­nior econ­o­mist Dr John Baffes, crude oil is ex­pected to av­er­age at US$52 this year, US$54 in 2018 and US$57 in 2019, and then re­main mostly be­low US$60 per bar­rel for the long term.

“This doesn’t mean it can­not go above US$60 for the short term, but in the long term, yes, it will stay be­low US$60 when you look at it in real terms,” he said on the side­lines of the Global Rub­ber Con­fer­ence here yes­ter­day.

The US shale oil in­dus­try, he said, was cur­rently the biggest force af­fect­ing the global oil mar­ket, while the in­flu­ence of the Or­gan­i­sa­tion of the Petroleum Ex­port­ing Coun­tries (Opec) and geopo­lit­i­cal events were di­min­ish­ing.

Baffes, who man­ages the World Bank’s com­mod­ity price fore­cast­ing and mar­ket mon­i­tor­ing process, said they had con­ducted down­ward re­vi­sions on their long-term fore­casts on crude oil prices as more in­for­ma­tion about the US shale oil in­dus­try be­came avail­able. “Over the past year, the ques­tion has been about how re­silient the US shale oil would be, and whether it was go­ing to be a dom­i­nant force even af­ter oil prices fell be­low US$50.

“We have new data now that shows that it is very re­silient and has made a lot of pro­duc­tiv­ity ad­vances, with the cost of pro­duc­tion go­ing down,” he said.

Apart from US shale oil, other coun­tries such as Iran have shale oil re­serves which re­main un­tapped.

Ear­lier this year, Iran re­port­edly dis­cov­ered shale oil re­serves of two bil­lion bar­rels in its western Lorestan prov­ince.

On the di­min­ish­ing in­flu­ence of Opec, Baffes said the last time the or­gan­i­sa­tion was seen to have had a sig­nif­i­cant im­pact on prices was back in Novem­ber 2014, when prices plunged be­low the US$70 mark af­ter it de­cided not to cut out­put.

“Since then, I would say that Opec has lost its strength.

“This was very clear when they de­cided to re-en­gage in the mar­ket in Oc­to­ber last year - ini­tially the mar­kets re­acted pos­i­tively, but when the plans were an­nounced the mar­ket was doubt­ful, and the reaction was muted,” he said.

How­ever, he noted that Opec was in a tight spot as it was not easy to with­draw sup­ply from the mar­ket, as the coun­tries’ fi­nan­cials would be im­pacted.

“Fur­ther­more, the mo­ment Opec with­draws oil from the mar­ket, we have the US shale oil com­ing in.

“Be­ing a short cy­cle in­dus­try, un­like the long projects we typ­i­cally see from the tra­di­tional in­dus­tries, they can come in and exit quickly,” he added.

On geopo­lit­i­cal fac­tors, Baffes said events that have taken place af­ter the oil price plunge in 2014 have not had much im­pact on the in­dus­try.

“Prior to that, if there was a threat in the Mid­dle East, for ex­am­ple, those were ma­jor forces that af­fected oil prices. But this no longer seems to be the case,” he said.

On the other hand, tech­no­log­i­cal ad­vances such as elec­tric cars and re­new­able en­ergy are plac­ing pres­sure on the de­mand side of the in­dus­try.

“There is pres­sure on the sup­ply side, and pres­sure on the de­mand side.

“This is why we don’t see prices go­ing above US$60 for the long term,” he said.

Baffes: This doesn’t mean it can­not go above US$60 for the short term, but in the long term, yes, it will stay be­low US$60 when you look at it in real terms.

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