The World Bank has cut its forecast for oil prices in 2016 to US$37 per barrel, down from its October 2015 forecast of US$51 per barrel, the Washington, D.C.-based organization announced on Tuesday.
The gloomier forecast reflects several supply and demand factors, including the resumption of exports from Iran, U.S. production levels, the mild winter weather in the Northern Hemisphere, and weak growth prospects in the major emerging markets, the World Bank outlook says.
The World Bank expects to see a gradual recovery in oil prices over the course of the year. To start, the recent drop in prices is not fully warranted by the fundamental drivers of supply and demand, the outlook says. Additionally, production cuts will likely to outweigh any additional capacity coming to the market, it says. And, it suggests that demand is expected to strengthen somewhat during the year, due to a modest pickup in global growth.
Still, the expected price recovery will be smaller than previous rebounds, and it cautions that the forecast is subject to “considerable downside risks,” the outllook says.
“Low prices for oil and commodities are likely to be with us for some time,” says John Baffes, senior economist at the bank, in a statement. “While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain.”