W’Bank Forecasts Oil Prices to Average $74 in 2019


Obinna Chima

The World Bank has predicted that oil prices will average $74 a barrel in 2019, marginally up from its projected average of $72 a barrel in 2018.

But metals prices were expected to remain broadly stable in 2019.

The World Bank stated this in its October Commodity Markets Outlook, obtained wednesday.

Nigeria’s federal government recently proposed N8.73 trillion for next year’s budget, which was based on crude oil price of $60 per barrel.

Continuing, the World Bank noted that growing global trade tensions were weighing on non-energy commodity prices and could be leading to downward revisions to its 2019 price forecasts.

Prices for energy commodities – which include oil, natural gas, and coal — were forecast to average 33.3 per cent higher in 2018, than the previous year but to broadly stabilise in 2019, the World Bank said.

US oil production growth was expected to be robust whereas oil production losses are expected in Iran and Venezuela. Global demand is expected to hold steady.

Prices for agricultural commodities, including food commodities and raw materials, were anticipated to decline marginally in 2018 amid ample supply and trade tensions before rising 1.6 per cent in 2019.

The metals index was expected to rise 5.4 per cent this year and decline modestly in 2019. Prices could drop more than expected if global trade frictions intensify.

“Further escalation of trade restrictions between major economies could lead to large economic losses and cascading trade costs through global value chains,” World Bank’s Senior Director for Development Economics and acting Chief Economist, Shanta Devarajan said.

Devarajan added: “Any setbacks to growth in major economies would have significant negative repercussions for the rest of the world through trade, confidence, financial, and commodity-market channels.”

The Bank noted that imposition of both commodity-specific and broad-based tariffs this year had reduced and diverted trade flows; amplified price differentials between some countries among some commodities including soybeans, steel and aluminum; and more generally led to concerns about weaker global trade and growth prospects.

“The outlook for commodity prices is highly uncertain given a number of policy-related risks, which include the possibility of additional tariffs or sanctions,” the Director of the World Bank’s Development Economics Prospects Group, Ayhan Kose said.

“In addition, demand for industrial commodities is likely to soften in coming years. A large number of emerging market and developing economies depend on raw materials for government and export revenues and should therefore be strengthening policy frameworks and rebuilding fiscal buffers.”

It noted that over the past 20 years, demand for commodities had surged in large part due to demand from China. As China’s economy matures and shifts toward less commodity-intensive activities, energy and metal demand growth was likely to slow, it added.

“Slower growth in commodity consumption would likely dampen prices. Further, other factors, such as advances in technology, shifts in consumer preferences, environmental concerns, and policies to encourage cleaner fuels could lead to sharper declines in global use of some commodities than current trends indicate,” Senior Economist and lead author of the Commodity Markets Outlook,” John Baffes added.