World Bank: Crude Oil Prices to Average $53/bbl in 2017

  •  Projected average represents 24% increase over 2016 figures   
  •  Nigeria’s GDP growth expected at 1% this year, 0.2% lower than April forecast

Kunle Aderinokun in Washington DC, USA

The World Bank has projected  that crude oil prices would average $52-$53 per barrel (bbl) this year- an increase of 24 per cent  over 2016 -  owing to the strong demands, 

The Bretton Woods institution which gave the forecast in its October 2017 issue of Africa’s Pulse, one of its publications, noted that while the prices of crude oil had been under downward pressure throughout the year, the prices had recovered.

According to the bank, “After dropping to $46 per barrel (bbl) in mid-year amid a rebound in US crude oil production, crude oil prices have recovered. Crude oil prices rose in the third quarter owing to 

strong demand and improved compliance by Organisation of Petroleum Exporting Countries (OPEC) and  non-OPEC producers with production agreements.

The World Bank explained that for the next year and beyond,  the oil price path will reflect the pace of demand, the degree of decline of stocks, and production restraint  among OPEC and non-OPEC producers. It, however, indicated that, the global market was  unlikely to tighten significantly  because of large projected increases in US shale production 

The World Bank Africa’s Pulse, which is an analysis of issues shaping Africa’s economic future, recalled that, “After a marked slowdown in 2016, growth in Sub-Saharan Africa strengthened in 2017, as global activity  and trade gained momentum, commodity prices recovered, and global financing conditions remained favourable. Growth in the region”, it added, was expected to “pick up from a two-decade low of 1.3 percent in 2016  to 2.4 per cent in 2017, slightly below the April forecast of 2.6 percent.  Crude oil prices  rebounded toward the end of 2017 on strengthening demand and falling stocks, and are projected to be  24 per cent higher than in 2016.”

The bank alluded to several factors that prevented a stronger recovery in the region in 2017. “Nigeria and South Africa exited  recession in the second quarter of 2017 as expected. A recovery in the oil sector, partly due to a decline in militants’ attacks on oil pipelines, helped Nigeria pull out of five consecutive quarters of negative growth but the rebound was softer than expected. Growth in Nigeria in 2017 is now expected to  come in at 1.0 per cent, 0.2 percentage point below the forecast in the April 2017 issue of Africa’s Pulse.”

Nevertheless, it said, “The increase in oil production was below projections, due to maintenance work, and growth in the non-oil sector has remained subdued.”

However, Africa’s Pulse, a report from the Office of the Chief Economist for the Africa Region, acknowledged that,  “Currencies in the region have  stabilised in real effective terms.  In oil exporters,  pressures on the exchange rate have eased due to higher oil prices, increased oil production, and a weaker dollar.”

However, the spread between the parallel and official rates has persisted in Nigeria and Angola,  reflecting continued foreign exchange restrictions, the bank indicated.

While in April 2017, the Central Bank of Nigeria introduced a  new investor and exporter window, which has helped improve businesses’ access to foreign exchange, the report also noted that, in  Angola, exchange rate controls introduced in the wake of the collapse of oil prices in 2014 had remained in place.

It acknowledged that, “The recent increase in export receipts has helped stabilise the level of reserves in the region, although reserves remain low.

“The median level of reserves in the region is expected to account for 3 months of imports in 2017, the same as in 2016, but below the peak of 4 months of imports in 2014. In several countries, the level of reserves provided less than one month of imports coverage.

“The prospects of stabilising commodity  prices, together with financial  inflows, should enable commodity exporters to accumulate  international reserves, but the low  import coverage will weigh on the  ability of central banks to continue managing their currencies,” it stated.

Stating that, the slowdown in inflation was more  gradual in Nigeria, the World Bank Africa’s Pulse said,  “Over the same period, consumer price inflation in Nigeria fell from 18.6 to 16  per cent, remaining unchanged at that level for several months.”