The World Bank has slashed its forecast for oil prices this year, saying the cost of a barrel of crude will stay near its current lows for the rest of 2016.
The Washington-based institution said a glut of oil that sent prices crashing by almost half last year and another 27% this month will continue to dominate the market for the next year.
In a message that will cheer motorists, heating oil customers and countries that import oil, it added that warm winter weather in Europe and weaker than expected growth in China and other emerging economies will depress demand and keep the average price at $37 (£26) a barrel, down from a projection of $51 last October.
Oil prices began to tumble during the summer of 2014 in response to a slowdown in China’s factory output. The country’s manufacturing industry, which in the aftermath of the 2008 financial crash has become the world’s largest single destination for oil and metals, stopped buying commodities at the previous high levels.
Investors expected the major oil producers to cut production in response to falling demand, but instead the Saudi-led Opec nations, Russia, and the US oil fracking firms have until recently maintained the flow of crude into world markets.
The World Bank, which is a major lender to developing nations, said the market had reached a turning point and the “fundamental drivers of oil demand and supply” are “likely to partly reverse”.
It argued that prices would stabilise below $40 for the rest of the year as high-cost oil producers make production cuts “that are likely to outweigh any additional capacity coming to the market”. A modest pickup in global growth would also prevent a further slump.
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Source: The Guardian