World Bank: Oil Prices will be Lower in 2019-2020 Due to Sluggish Global Growth and Rising non-OPEC Supply
Global oil price touched its highest level since July - Photo by OPEC

JAKARTA (TheInsiderStories) – The World Bank (WB) saw that crude oil prices are estimated in average US$66 per barrel in 2019 and then decline to $65 per barrel in 2020, a downward revision of the October 2018 forecast due to the prospect of weaker global growth and greater than expected US production. While prices of metals and agriculture increased again in 2020, it said in the April Commodities Outlook on Tuesday (04/23).

“The outlook for commodity prices is sensitive to policy-related risks, especially for oil,” said Director of the World Bank’s Prospects Group Ayhan Kose.

The outlook for oil, said World Bank, could be swayed by a range of policy outcomes, including whether the Organization of the Petroleum Exporting Countries (OPEC) and partners extend production cuts, the impact of the removal of waivers to the United States sanctions on Iran, and looming changes in marine fuel emissions regulations.

After a drop in late 2018, oil prices have risen steadily since the start of the year, as OPEC and partners have cut production, and output has declined in Venezuela and Iran.

While, US shale production is expected to remain robust after surging in 2018. Energy prices overall – which also include natural gas and coal ‒ are expected to average 5.4 percent lower in 2019 than in 2018.

A special focus section shows that when countries intervene to dampen the effect of food price fluctuations on their citizens, the collective intervention of many countries can produce the opposite of the intended effect and amplify movements in world prices – to the detriment of the most vulnerable populations.

Meanwhile, recovery in metal prices was driven by stabilization of production activities in China after a weakening around the turn of the year, as well as various supply shortages.

“It has become clear that the commodity price cycle has come to an end, which is causing strains for exporters but may offer opportunities for importers,” said World Bank Equitable Growth, Finance & Institutions Vice President Ceyla Pazarbasioglu.

The World Bank suggests that exporters may have to adapt to the benefits of slower commodity revenues with economic diversification, while importers can take advantage of lower commodity prices to increase investment, she said.

Agricultural prices are projected to fall 2.6 percent this year but rebound in 2020 due to lower crop production and higher energy and fertilizer costs.

That is because an increase in trade tensions is likely to push prices lower, but higher-than-expected energy costs can lift prices more than expected.

Meanwhile, the US Energy Information Administration at its Summer Fuels Outlook estimates that spot Brent prices on average declined to $65/b in 2019 and $ 62/b by 2020, compared to an average of $71/b in 2018.

EIA expects that West Texas Intermediate (WTI) crude oil prices will average $8/b lower than Brent prices in the first half of 2019 before discounts gradually fall to $4/b by the end of 2019 and until 2020.

On the other side, EIA raised its forecast for US and global crude prices this year and raised expectations for 2019 and 2020 for US crude oil production, according to a report on Short-Term Energy Outlook released Tuesday (04/23).

EIA estimates US oil production to reach 12.39 million barrels per day in 2019, up 0.7 percent from March estimates. EIA also increased its 2020 output display by 0.5 percent to 13.1 million barrels per day.

This increase in US oil production capacity will significantly affect the fall in global oil prices in 2020, as predicted by the World Bank. But we hope that the US and OPEC countries continue to cut oil production, as seen in the surge in oil prices in 1Q 2019.

Written by Daniel Deha, Email: daniel@theinsiderstories.com