World Bank: Oil prices may remain below US$60
Low price environment likely to persist until 2030
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.