Emmanuel Addeh in Abuja
The World Bank has said that oil prices won’t be rising much next year either, but would average $44 per barrel, saying that prices will not recover to pre-pandemic levels at least until 2022.
In its semi-annual Commodity Markets Outlook report released yesterday, the bank said it expects oil to average $44 per barrel next year, slightly up from an expected average of $41 a barrel this year.
The Federal Executive Council in Nigeria recently approved a $40 oil benchmark for the 2021 budget, and also FX target of N379/$ for the budget which has been presented before the national assembly.
It added that the projected 2021 average will still be significantly lower than the 2019 average oil price level of $61 a barrel.
“Oil prices are expected to average $44bbl in 2021, a slight increase from a projected $41bbl in 2020,but still significantly lower than their 2019 level of $61bbl.
“The forecast is slightly above the April projections , primarily reflecting a somewhat improved global growth outlook as well as stronger than expected supply response,” the World Bank stated.
“Notwithstanding steep production cuts, the recovery in oil prices has stalled recently amid concerns about renewed Covid-19 infections and their impact on oil consumption,” the bank added in the report.
According to the World Bank, next year, oil demand in almost all countries will still be lower than in 2019, except in China, and as a result, oil prices will not move much higher than today’s levels in the low $40s.
“High levels of inventories are expected to continue to unwind over the forecast, and will keep oil prices below $50 until 2022,” the World Bank said.
In addition, it stated that OPEC+ countries have significant levels of spare production capacity, which further reduces the likelihood of sharply higher prices in the near term.
Natural gas prices, however, are seen rising in 2021 as consumption recovers in line with the global economy, according to the bank.
Like many other forecasters, the World Bank sees the risks for oil skewed to the downside. For demand, the pandemic is the biggest risk, while the return of Libyan production is a risk to oil prices on the supply side.
A potential upside could be OPEC+ not easing the cuts from January as planned, but extended cuts at current levels could be politically difficult to achieve.
According to the bank, many oil producers in the pact had their finances hit hard by the oil price crash and the pandemic.