BISHKEK (TCA) — The World Bank has lowered its 2016 forecast for crude oil prices to $37 per barrel in its latest Commodity Markets Outlook report from $51 per barrel in its October projections. Low oil prices hit oil-producing countries in Central Asia, mainly Kazakhstan, and Russia.
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, released on January 26.
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.
“Low prices for oil and commodities are likely to be with us for some time,” said John Baffes, Senior Economist and lead author of the Commodities Markets Outlook. “While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain.”
Beyond oil markets, all main commodity price indices are expected to fall in 2016 due to persistently large supplies, and in the case of industrial commodities, slowing demand in emerging market economies. In all, prices for 37 of the 46 commodities the World Bank monitors were revised lower for the year.
