Forecasts For Global Oil Prices Lowered by World Bank

The World Bank in its latest commodity update yesterday lowered its 2015 forecast for crude oil prices from $57 per barrel in its July report to $52 per barrel.

The revised forecast reflects a further slowing in global economic performance, high current oil inventories, and expectations that Iranian oil exports would rise after the lifting of international sanctions.
According to the Bank’s new Commodity Markets Outlook, a quarterly update on the state of the international commodity markets, energy Price Index tumbled 17 per cent in the third quarter of 2015, from the previous three-month period, led by a renewed plunge in oil prices prompted by expectations of slower global growth, particularly in China and other emerging markets, abundant supplies, and prospects of higher Iranian exports next year.The reversed forecast notes that energy prices were expected to average 43 per cent lower in 2015 than in 2014.
For commodities excluding energy, the World Bank reports a 5 per cent decline in prices in Q3, and forecast that non-energy prices would register a 14 per cent decline in 2015, from the previous years’ levels.

“We see a five-year-long slide in most commodity prices continuing in the third quarter of 2015. There are sufficient inventories of oil and other commodities and demand is weak, especially for industrial commodities, which is why prices may stay persistently low,” said John Baffes, senior economist and lead author of Commodity Markets Outlook.
“Despite expectations of one of the strongest El Niño episodes on record, the weather pattern, which affects winds and water temperatures of the Pacific Ocean and changes precipitation levels, especially in the Southern Hemisphere, is unlikely to cause a spike in global agricultural prices because of ample supplies of most agricultural commodities and weak links between global and domestic prices,” said the report.

This is consistent with the limited impact on global markets of past El Niño episodes.
To date, global agricultural prices have declined while those of key domestic markets have not shown large deviations from trends due to El Niño.
However, El Niño could be a source of significant local disruptions in the most affected regions, the Outlook said. In particular, the weather pattern is likely to have a greater impact on more isolated local food markets, which are not linked to international markets.
On the possible effects of the Iran Nuclear Agreement on global energy markets, the forecast said that within several months, Iran could increase crude oil production by 0.5-0.7 million barrels per day (mb/d), potentially reaching a 2011 pre-sanctions level s.of 3.6 mb/d.

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