Amid improving market sentiment and a weakening dollar, the World Bank has raised its 2016 forecast for crude oil prices to $41 per barrel from $37 per barrel in its latest Commodity Markets Outlook, stating that oversupply in markets is expected to recede.
Brent crude futures were up $1.30 or nearly three per cent, at $45.78 a barrel on Tuesday. Oil markets rose about three per cent as a tumbling dollar boosted commodities denominated in the greenback after bets that the Federal Reserve will hold US interest rates where they are.
The crude oil market recovered from a low of $25 per barrel in mid-January to $40 per barrel this month, following production disruptions in Iraq and Nigeria and a decline in non-Organisation of Petroleum Exporting Countries output, mainly US shale.
A proposed production freeze by major producers failed to materialise at a meeting held in Doha, Qatar mid-April.
“We expect slightly higher prices for energy commodities over the course of the year as markets rebalance after a period of oversupply,” senior economist and lead author of the Commodities Markets Outlook, John Baffes, said in the report released yesterday.
“Still, energy prices could fall further if OPEC increases production significantly and non-OPEC production does not fall as fast as expected.”
All main commodity indexes tracked by the World Bank are expected to decline in 2016 from the year before, 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.
Energy prices, including oil, natural gas and coal, are due to fall 19.3 per cent in 2016 from the previous year, representing a more gradual drop than the 24.7 per cent slide forecast in January.
Non-energy commodities, such as metals and minerals, agriculture, and fertilisers are expected to decline 5.1 per cent this year, a downward revision from the 3.7 per cent drop forecast in January.