World Bank Lowers 2016 Forecasts for Crude Oil to $37 Per Barrel
The World Bank has lowered its forecast for crude oil to $37 per barrel in its latest Commodity Markets Outlook report released at the weekend from $51 per barrel in its October 2015 projections.
The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), two agencies of the World Bank said in the report that the lower forecast was a reflection of a number of supply and demand factors.
The World Bank’s quarterly report identified the factors to include sooner-than-anticipated resumption of exports by the Islamic Republic of Iran, greater resilience in United States production due to cost cuts and efficiency gains, a mild winter in the Northern Hemisphere, and weak growth prospects in major emerging market economies.
The report noted that oil prices fell by 47 per cent in 2015 and are expected to decline, on an annual average, by another 27 per cent in 2016.
The report however, added that from their current lows, a gradual recovery in oil prices is expected over the course of the year, for several reasons.
“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,” said the report.
According to the report, 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.
World Bank’s Senior Economist and Author of the Commodity Markets Report, Mr. John Baffes said “low prices for oil and commodities are likely to be with us for some time.”
“While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain,” he added.
Beyond oil markets, the report further stated that aall main commodity price indices are expected to fall in 2016 due to persistently large supplies.
In the case of industrial commodities, the report blamed slowing demand in emerging market economies.
According to the report, non-energy prices are expected to slip 3.7 percent in 2016, with metals dropping 10 percent after a 21 percent fall in 2015, due to softer demand in emerging market economies and gains
in new capacity.
Agriculture prices are projected to decline 1.4 percent, with decreases in almost all main commodities groups, reflecting adequate production prospects despite fears of El Niño disruptions, comfortable levels of stocks, lower energy costs, and plateauing demand for biofuel. In all, prices for 37 of the 46 commodities the World Bank monitors were revised lower for the year.
Emerging market economies have been the main sources of commodity demand growth since 2000. As a result, weakening growth prospects in these economies are weighing on commodity prices. A further slowdown in major emerging markets would reduce trading partner growth and global commodity demand.