Lagos – The World Bank in its latest forecast said global prices of crude oil, gas, and coal will rise by 20 percent this year.
According to the its April commodity markets outlook, oil prices will average $65 a barrel through 2018, 22% higher than the average price of $53 in 2017, due to the combined effect of production cut by the Organisation of the Petroleum Exporting Countries, OPEC, and its allies led Russia, and an increase in demand for the products.
OPEC and its partners agreed to cut oil output by 1.8 million barrels per day since January last year, an effort which has recorded a 149 percent success, and has boosted prices to $74 per barrel as at Thursday.
Although Brent dropped by 1% on Wednesday due to tension over US sanctions on Iran which later eased a bit after Tuesday’s talks between the US and French presidents, other factors contributing to high oil prices still remain strong.
“Accelerating global growth and rising demand are important factors behind broad-based price increases for most commodities and the forecast of higher commodities prices ahead,” said Shantayanan Devarajan, World Bank Senior Director for Development Economics and acting Chief Economist.
“At the same time, policy actions currently under discussion add uncertainty to the outlook,” he added.
Oil prices are expected to average $65/bbl over 2019 as well.
Although prices are projected to decline from April 2018 levels, WB said they should be supported by continued production restraint by OPEC and non-OPEC producers and strong demand.
While upside risks to the forecast include constraints to U.S. shale oil output, geopolitical risks in several producing countries, and concerns the United States may not waive sanctions against Iran, downside risks include weaker compliance with the oil producers’ agreement to restrain output or outright termination of the accord, rising output from Libya and Nigeria, and a quicker-than-expected rise in shale oil output.
“Oil prices have more than doubled since bottoming in early 2016, as the large overhang of inventories has been reduced significantly,” said John Baffes, Senior Economist and lead author of the Commodity Markets Outlook. “Strong oil demand and greater compliance by the OPEC and non-OPEC producers with their agreed output pledges helped tip the market into deficit.”
“Oil exporters with flexible currency regimes, relatively large fiscal buffers, and more diversified economies have fared better than others since the oil price collapse,” said Ayhan Kose, director of World Bank’s Development Economics Prospects Group.
“However, most oil exporters still face significant fiscal challenges in the face of revenue prospects that have weakened since 2014.”