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World Bank sees depressed oil, commodity prices through 2016

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AFP
AFP
Agence France-Presse

The Bank also said in a new report that a forecast strong return of the El Nino weather phenomenon, which can hit essential southern hemisphere food crops, will not likely force grain prices sharply higher because of generous stockpiles.

The World Bank’s quarterly commodity sector report cut its forecast for average crude oil prices to $52 a barrel this year from $57 estimated three months ago. For 2016, the average price forecast is $51.

The Bank said the main reason for the depressed outlook is the expected return of  Iran crude to global markets following the implementation of the nuclear agreement with Western powers, which will drop sanctions on the country.

“The country’s 40 million barrels in floating storage could be made available almost immediately upon sanctions being lifted; and, within a few months, Iran could increase its crude oil production toward pre-sanctions levels,” the bank said.

“The impact of Iranian exports on global oil and natural gas markets could be large over the longer term provided that Iran attracts the necessary foreign investment and technology to extract its substantial reserves.”

But the picture for commodities generally is also weak, with the slower global economy.

“All main commodity price indices are expected to decline in 2015, mainly owing to ample supply and, in the case of industrial commodities, slowing demand in China and emerging markets,” the Bank said.

Non-energy commodities could gain slightly in 2016, but only after sharp falls this year. Food prices, down 15.2 percent this year, could climb back only 1.5 percent in 2016, it said.

The plunge in commodity prices has hurt the economies of emerging and poorer economies dependent on exports. Low prices could have a silver lining, the Bank suggested, in that they could encourage more consumption and higher industrial output in advanced countries, to spur growth worldwide.

A key variable for food will be the return of El Nino, a cyclical weather phenomenon that causes significant changes in rainfall and temperatures in certain regions.

“Recent weather forecasts suggests that the current El Nino episode could be one of the strongest on record,” the report said.

“However, its impact on commodity prices is likely to be local rather than global because global markets are currently well-supplied and country-specific factors could have a significant impact on local prices.”

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