Oil price to rise says World Bank

29 April 2016

The cost of oil is predicted to increase this year as an oversupply falls back while other commodity prices are expected to fall, according to the World Bank.

In its latest Commodity Market Outlook, the bank raised its 2016 forecast for crude oil prices from $37 to $41 per barrel amid improving market sentiment and a weakening dollar.

The crude oil market has rebounded from a low of $25 per barrel in mid-January to $40 per barrel in April, following production disruptions in Iraq and Nigeria, and a decline in non-OPEC production, mainly US shale, the report said.

“We expect slightly higher prices for energy commodities over the course of the year as markets rebalance after a period of oversupply,” said John Baffes, senior economist and lead author of the report.

“Still, energy prices could fall further if OPEC increases production significantly and non-OPEC production does not fall as fast as expected.”

The World Bank said it expected all main commodity indexes to decline this year compared to last year, due to persistently elevated supplies and in the case of industrial commodities, such as energy, metals, and agricultural raw materials, weak growth prospects in emerging markets and developing economies.

According to the bank energy prices, including oil, natural gas and coal, are predicted to fall 19.3% year-on-year, which is less than the 24.7% drop forecast in January. Non-energy commodities, such as metals, minerals, agriculture, and fertilisers, are predicted to decline 5.1% this year. This is compares to the 3.7% drop forecast in January. Metals prices are projected to fall 8.2% this year. A fall of 10.2% was forecast in January.

Agriculture prices are forecast to fall more than projected in January due to what is expected to be a favourable harvest year for most grain and oilseed commodities, the bank said.

It added that low commodity prices were undermining growth prospects for many resource-rich countries and that countries that had borrowed and invested heavily in anticipation of faster growth may struggle to service their debt and sustain investment.

The banks said that large falls in oil and metals prices from the early 2011 peak had forced natural resource development projects in several emerging and developing countries to be put on hold or delayed.

Ayhan Kose, director of the bank’s Development Prospects Group, said that some countries could ill afford such project setbacks. “Greater transparency, improved government efficiency and improvements in macroeconomic frameworks could soften such disruptions,” he said. “Countries may prefer to wait for prices to start rising again before launching new natural resource development initiatives.”

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