World Bank lowers 2015 crude oil prices forecast

The World Bank has lowered its 2015 forecast for crude oil prices from $57 per barrel in its July report to $52 per barrel for October this year.

The revised forecast reflects a further sluggish in global economic performance, high current oil inventories, and expectations that Iranian oil exports will 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.

The Bank’s 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. Energy prices are expected to average 43 percent lower in 2015 than in 2014.

For commodities excluding energy, the World Bank reports a five per cent decline in prices in third quarter, and forecasts that non-energy prices will register a 14 percent decline in 2015 from the previous year’s 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,” according to Senior Economist and lead author of Commodity Markets Outlook, John Baffes.

The World Bank said within several months, Iran could increase crude oil production by 0.5 to 0.7 million barrels per day (mbpd), potentially reaching a 2011 pre-sanctions level of 3.6 mbpd.

It stated: “In addition, Iran could immediately begin exporting from its 40 million barrels of floating storage of oil.
Given that Iran has the largest known gas global reserves (18 percent of the world total), it has the potential to produce and export a significant volume of natural gas over the long term”.
World Bank’s Development Prospects Group, Ayhan Kose, Director, noted that the potential impact of Iranian oil and gas exports on global and regional markets could be large over the long term if Iran can attract the necessary foreign investment and technology to leverage its substantial reserves.

He said that uncertainty about Iran’s capacity to ramp up exports adds to risks to the energy-price forecast. Downside risks include higher-than-expected OPEC production and continuing falling costs along with improved productivity of the U.S. shale oil industry.

He hinted that slowing demand and high stocks could further weigh on oil prices. Upside risks include: an accelerating decline in U.S. shale oil output, and reduced supply because of geopolitical events.

The outlook provides detailed market analysis for major commodities groups, including energy, metals, agriculture, precious metals, and fertilizers.

According to the report, metals prices fell 12 per cent in third quarter, the fourth consecutive quarterly decline, reflecting slowing demand, notably from China.