The World Bank today warned that slowing emerging-market economies were hampering an oil recovery, and prices could sink further in a blow to a “fragile” global economy.
Crude oil in 2016 is projected to come in at USD 37 a barrel, down from its October estimate of USD 51, the World Bank said in a new quarterly report.
“A faster-than-expected slowdown in major emerging markets economies – especially if combined with financial stress – could further reduce commodity prices considerably, setting back growth in commodity exporters and the global economy,” it said in the Commodity Markets Outlook report.
Oil prices fell below USD 30 a barrel in mid-January to lows last seen more than 12 years ago amid a global oversupply and weakening demand.
The World Bank recently downgraded the growth projections for emerging-market and developing economies, after they slowed to a 3.3 per cent pace last year, their weakest showing since 2010.
Emerging-market economies have been the main drivers of commodity demand growth since 2000, a reason why their weakening growth prospects are weighing on commodity prices, the World Bank said.
“Low commodity prices are a double-edged sword, where consumers in importing countries stand to benefit while producers in net exporting countries suffer,” said Ayhan Kose, director of the Bank’s Development Prospects Group.
“It takes time for the benefits of lower commodity prices to be transformed into stronger economic growth among importers, but commodity exporters are feeling the pain right away.”
The World Bank explained its stiff 27.5 per cent downgrade on 2016 oil prices reflects a number of supply and demand factors that emerged in the past three months.
US oil production has shown greater resilience due to cost cuts and efficiency gains, it said.
Other factors cited include the “sooner-than-expected” resumption of Iranian oil exports after international sanctions were lifted and mild winter weather in the northern hemisphere that reduced demand for heating.
Oil prices, which fell by 47 per cent in 2015, are expected to decline at a slower pace, by an additional 27 per cent this year, the report said.
“The sharp oil price drop in early 2016 does not appear fully warranted by fundamental drivers of oil demand and supply, and is likely to partly reverse,” it said.