Oil prices to hit $57 in 2015, $61 in 2016 – World Bank

Oil prices remain challenging this year, better next year, says World Bank report

Despite recent steep declines in world oil prices to below $50, the World Bank is nudging up its 2015 forecast for crude oil prices from $53 in April to $57 per barrel, and $61 in 2016 as supply growth slows.

Photo by Shaun T. Polczer.

The World Bank’s revised forecast was included in the latest Commodity Markets Outlook, a quarterly update on the state of the international commodity markets, and came after oil prices rose 17 per cent in the second quarter.

The World Bank reports that energy prices rose 12 per cent in the quarter, with the surge in oil offset by declines in natural gas (down 13 per cent) and coal prices (down 4 per cent).

The World Bank expects energy prices to average 39 per cent below 2014 levels. Natural gas prices are projected to decline across all three main markets—U.S., Europe, and Asia—and coal prices to fall 17 per cent.

Excluding energy, the World Bank reports a 2 per cent decline in prices for the quarter, and forecasts that non-energy prices will average 12 per cent below 2014 levels this year.

 “Demand for crude oil was higher than expected in the second quarter. Despite the marginal increase in the price forecast for 2015, large inventories and rising output from OPEC members suggest prices will likely remain weak in the medium-term,” said John Baffes, senior economist and lead author of Commodity Markets Outlook.

Iran’s new nuclear agreement with the US and other leading governments, if ratified, will ease sanctions, including restrictions on oil exports from Iran.

Downside risks to the forecast include higher-than-expected non-OPEC production (supported by falling production costs) and continuing gains in OPEC output. Possible upside pressures may come from closure of high-cost operations—the number of operational oil rigs in the US is down 60 per cent since its November high, for example—and geopolitical tensions.

In a special feature assessing the roles played by China and India in global commodity consumption, the Outlook finds that demand from China and, to a lesser extent, India, over the last two decades significantly raised global demand for metals and energy—especially coal—but less so for food commodities.

China’s consumption of metals and coal surged to roughly 50 percent of world consumption, and India’s to a more modest 3 per cent for metals, and 9 per cent for coal. These patterns reflect different growth models and commodity consumption patterns in the two countries.

If the two countries catch up to OECD levels of per capita commodity consumption, or if India’s growth shifts towards industry, demand for metals, oil, and coal could remain strong. In contrast, given that the level of per capita consumption of food in China and India is already comparable with the world, pressures on food commodity prices are likely to ease as their population growth—one of the key determinants of food commodity demand—slows.

“China and India have played a significant role in driving global consumption of industrial commodities especially since the early 2000s. Going forward, while demand from India is likely to be a major factor in shaping consumption of industrial commodities, China will be important in driving global demand for energy given its efforts in rebalancing growth,” said Ayhan Kose, director of the World Bank’s Development Prospects Group.