- Development lender downgrades 2016 forecast to $37 per barrel
- Prices seen making a recovery to $48 per barrel next year
Oil will recover more slowly this time than it did following the major price shocks of the last 30 years, the World Bank predicts.
The Washington-based development bank Tuesday said it marked down its forecast for the average price of oil this year to $37 per barrel, from $51 in its previous projection in October. World Bank researchers expect oil prices to bounce back to an average of $48 per barrel in 2017 and about $51 in 2018, according to a quarterly update to the lender’s commodities-market outlook.
The forecast indicates the recovery will be shallower than it was following other major price declines, including the collapse that began in 1985, when OPEC boosted production, and the period following the 2008 global financial crisis, the World Bank said.
“Low prices for oil and commodities are likely to be with us for some time,” World Bank senior economist John Baffes said in a statement accompanying the report. “While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain.”
Global crude prices fell 47 percent last year to an average of $51 per barrel, according to the lender, whose oil estimate is based on prices for three global benchmarks. Oil for March delivery traded at $30.83 a barrel at 9:35 a.m. New York time.
Oil prices could be lower than expected if OPEC produces more than anticipated and demand remains weak from emerging markets, the lender said. OPEC’s decision in December to maintain production rather than reduce supply has been one of the key factors depressing prices. Along with that there are ample inventories, weak demand and the prospect of Iran increasing production following the removal of foreign sanctions related to its nuclear program.
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The World Bank also cut its forecast for non-energy prices, which it now predicts will fall by 3.7 percent this year, led by a 10.2 percent drop in metals. Iron ore is expected to see the biggest decline, plunging 25 percent.
The slump in non-energy prices is being driven by weak demand among emerging markets and increased capacity, the lender said.