The World Bank has raised its 2017 forecast for crude oil prices to $55 per barrel from $53 per barrel as members of the Organization of the Petroleum Exporting Countries (OPEC) prepare to limit production after a long period of unrestrained output.
Energy prices, which include oil, natural gas and coal, are projected to jump almost 25 percent overall next year, a larger increase than anticipated in July, the World notes.
The revised forecast appears in the World Bank’s latest Commodity Markets Outlook. Oil prices are expected to average $43 per barrel in 2016, unchanged from the July report.
The bank’s projection is coming barely two weeks after OPEC said it remains ‘cautiously optimistic’ about recent rebound in oil prices as member countries loose up to one trillion dollar revenues in last two years.
“We expect a solid rise in energy prices, led by oil, next year,” said John Baffes, Senior Economist and lead author of the World Bank’s Commodity Markets Outlook. “However, there is considerable uncertainty around the outlook as we await the details and the implementation of the OPEC agreement, which, if carried through, will undoubtedly impact oil markets.”
But apart from oil, the Bank also foresees a modest recovery for most commodities in 2017 as demand strengthens and supplies tighten. Metals and minerals prices are expected to rise 4.1 percent next year, a 0.5 percentage point upward revision due to increasing supply tightness.
Zinc prices are forecast to rise more than 20 percent following the closure of some large zinc mines and production cuts in earlier years. Gold is projected to decline slightly next year to $1,219 per ounce as interest rates are likely to rise and safe haven buying ebbs, according to the Brettonwoods institution.
Following September agreement by OPEC member countries in Algiers to cut output to between 32.5m and 33m barrels per day as well as US data showing falling reserves and speculation growing over further supply disruption, oil prices have seen over eight percent rise across board. Two benchmark called WTI and Brent have attained over $50 dollars a barrel since then. But OPEC seems not to see the rebound as sustainable.
“The prospects for 2017 is also still looking bleak. So, we remain cautiously optimistic that this trend will continue driven by further stock draw downs bringing forward the rebalancing process with former prices,” OPEC Secretary General , Mohammad Sanusi Barkindo, speaking in Washington earlier in the month said despite these recent developments.
Barkindo said the Algiers decision particularly took into account the special but unfortunate circumstances of three OPEC member countries, including Nigeria,
Investments into this industry contracted by about 26 percent in 2015 with projections of a 22 further contraction in 2016, he highlighted.
Libya and Islamic Republic of Iran. Nigeria has been suffering from the impact of low prices as well low production because of the disturbances in the producing areas and has consequently lost on the average about 700 thousand barrels per day production.
Libya has lost over 1.3 million per day as a result of similar, even more serious social and political unrest in that country.
Iran is just emerging from sanctions during which their production suffered significantly. Barkindo said it was in the interest of the whole Organisation that the ministers decided in Algiers to take into account this special circumstances with regard to the implementation of the production decision that was taken.
Barkindo said the objective of an output cut, finally coming since 2008 negotiations
was to restore stability in the market and to address the issue of high inventories that is depressing prices caused driven by supply glut.
“We have seen growth in supply both from OPEC and non-OPEC because of the
Shell revolution in the US and North America, we have seen supply grow from non-OPEC to the tune of nearly 8 million barrels per day.
“So the market became saturated, although demand is robust but inventory started rising to unprecedented levels,” he noted.
Meanwhile, at the moment, there are global stocks both onshore and offshore, including floating storage of over $3 billion barrels of crude, Barkindo said.
He said the decision in Algiers was therefore to stimulate further strong growth round on a sustained basis and “we have seen now for almost five weeks continuous stock brought down in the US which is the biggest market.”
He was, however, optimistic that the sum total of the Algiers agreements would hopefully bring forward the rebalancing of the market and bring some form of equilibrium in prices. There is also an anticipation of some impact on revenues to member countries especially Nigeria that has suffered both from low prices as well as low production.