Banks cut oil price forecasts on demand concerns
Tuesday January 26, 2016
HOUSTON — U.S. crude climbed nearly 4 percent Tuesday on speculation that big oil exporters may eventually agree to ease production. But even as markets regained ground, major banks made big cuts to their annual oil-price forecasts and warned crude could sink further.
The World Bank Group said it believes crude prices will average $37 a barrel in 2016, pointing to slowing demand in developing nations, the imminent return of Iranian oil exports and more efficient U.S. shale drilling. Those could prolong the downturn and could keep a recovery small compared to past oil routs in 2008, 1998 and 1986.
The international lender's forecast is 27 percent lower than its projection in October.
Low prices for oil and commodities are likely to be with us for some time,†said John Baffes, senior economist at the World Bank. While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain.â€
The Washington D.C.-based World Bank lowered its expectations for 80 percent of the commodities it tracks amid signs of slowing growth in emerging economies. Fast-growing developing nations like China and India have bolstered price of oil and other commodities for more than a decade and a half but have recently declined.
The World Bank expects developing nations this year will grow 4 percent, significantly below historical averages,†and somewhat lower than the lender's previous 4.6 percent forecast. It noted the economies of China, Brazil, Russia and South Africa all slowed in 2015, buffeted by sluggish international trade, volatility in financial markets and cheap crude.
Downside risks still dominate this fragile global environment,†the World Bank said. Many of the factors underpinning the slowdown in recent years … are expected to persist.â€
Meanwhile, Credit Suisse said if oil demand growth comes in lower and crude stockpiles keep rising, the domestic oil price could average $30 a barrel in the first quarter and $38 a barrel for the whole year. That's 33 percent lower than its original assumption.
The bottom is not yet in,†Credit Suisse said in a client note Tuesday.
U.S. crude rose $1.11 to $31.45 a barrel on the New York Mercantile...