World Bank sees oil up but low
WASHINGTON – The World Bank has lowered its 2016 forecast for crude oil prices to US$37 per barrel in its January Commodity Markets Outlook from US$51 per barrel in its October 2015 projections.
The lower forecast reflects a number of supply and demand factors. These include sooner-than-anticipated resumption of exports by Iran, greater resilience in U.S. production due to cost cuts and efficiency gains, a mild winter in the Northern Hemisphere, and weak growth prospects in major emerging market economies, according to the World Bank’s latest quarterly report.
Oil prices fell by 47 percent in 2015 and are expected to decline, on an annual average, by another 27 percent in 2016. However, 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.
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.