World Bank lifts oil-price forecast, sees supply glut subsiding
The World Bank raised its forecast for crude-oil prices by about 11% on Tuesday, citing expectations for a reduction in the global glut of crude supplies.
The international institution, which provides loans to developing countries, expects crude-oil prices to average $41 a barrel this year, compared with a previous forecast for $37 as oversupply in markets is expected to recede, according to the quarterly Commodity Markets Outlook report released Tuesday. The World Bank forecast is an average of Brent LCOM6, +4.36% West Texas Intermediate CLM6, +1.09% and Dubai crudes.
The estimate for this year would still mark a decline of 19% from last year, and implies “small increases through the rest of the year as the oversupply in the oil market diminishes, the report said.
The market surplus is likely to continue in the first half of the year because of weak seasonal demand, but in the second half of the year, stockpiles are set to decline as refinery demand increases and U.S. production declines steepen, according to the World Bank.
Output from the Organization of the Petroleum Exporting Countries, excluding Iran, is expected to remain flat, it said. But Iranian production is forecast higher by some 500,000 barrels a day.
In the U.S., output saw a year-on-year decline in December, the first material drop in nearly 10 years, the World Bank said.
It pointed out that the U.S. Energy Information Administration forecast that domestic production will decline to 7.9 million barrels a day in the third quarter of 2017, from 9.3 million barrels a day in the fourth quarter of 2015.
U.S. investment in oil exploration and production is estimated to have declined by at least one-third last year and is likely to fall another 40% this year, the World Bank said.
The oil industry “borrowed heavily during the boom years, outspending cash flow, and many companies are encumbered with debt, selling assets, and entering into bankruptcy,” it said.
But “the recent oil price rally brought some relief to producers’ cash flow, and many hedged production forward at higher prices, thereby delaying supply rebalancing,” the report said. “Higher prices and continued efficiency improvements” could also keep supply and demand from reaching a balance.
So how far production will decline or when it may start rising again is uncertain, the World Bank said.
