Energy

World Bank Raises Oil Price Forecast to $43

Douglas A. McIntyre

Published: July 27, 2016 4:47 am

Last Updated: January 13, 2020 5:15 am

The price of oil is about $43, and the World Bank expects it to stay there for the rest of the year. The decision is based on both supply and concern about production interruption. Without explicitly saying so, demand in China will be a defining factor

Its comments:

The World Bank is raising its 2016 forecast for crude oil prices to $43 per barrel from $41 per barrel due to supply outages and robust demand in the second quarter.

Oil prices jumped 37 percent in the second quarter of 2016 due to disruptions to supply, particularly wildfires in Canada and sabotage of oil infrastructure in Nigeria. The revised forecast appears in the World Bank’s latest Commodities Markets Outlook and takes into account a recent softening of demand and the recovery of some disrupted supply.

“We expect slightly higher oil prices for the second half of 2016 as oil market oversupply diminishes,” said John Baffes, Senior Economist and lead author of the Commodities Markets Outlook. “However, inventories remain very large and will take some time to be drawn down.”

Despite the recovery of oil and many other commodity prices in the second quarter of 2016, most commodity indexes tracked by the World Bank are expected to decline this year.  This trend is due to persistently elevated supplies, and in the case of industrial commodities – which include energy, metals, and agricultural raw materials — weak growth prospects in emerging market and developing economies. However, most of the declines are projected to be smaller than expected in the April outlook.

Based on the sharp drop in oil prices recently, the oversupply may already be gone.