Oil prices to average US$65 a barrel in 2018 on strong demand, says World Bank

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KUALA LUMPUR (April 25): Crude oil prices are forecast to average US$65 a barrel over 2018, up from an average of US$53 a barrel in 2017, on strong demand from consumers and restraint by oil producers, according to the World Bank.

The World Bank in its April Commodity Markets Outlook report released yesterday said metals prices are expected to rise 9% this year.

It said prices for energy commodities — which include oil, natural gas and coal — are forecast to jump 20% in 2018, a 16-percentage-point upward revision from October's outlook.

Meanwhile, the metals index is expected to rise as a 9% drop in iron ore prices is offset by increases in all base metals prices, led by nickel, which is forecast to rise 30%.

The report said agricultural commodities, including food commodities and raw materials, are anticipated to see a price rise of over 2% this year on diminished planting prospects. Weather disruptions are expected to be minimal.

World Bank Senior Director for Development Economics and acting Chief Economist Shantayanan Devarajan said accelerating global growth and rising demand are important factors behind broad-based price increases for most commodities and the forecast of higher commodities prices ahead.

"At the same time, policy actions currently under discussion add uncertainty to the outlook," he said.

The World Bank said oil prices are expected to average US$65 a barrel over 2019 as well.

It said although prices are projected to decline from April 2018 levels, they should be supported by continued production restraint by OPEC and non-OPEC producers and strong demand.

The report said upside risks to the forecast include constraints to US shale oil output, geopolitical risks in several producing countries, and concerns the United States may not waive sanctions against Iran.

Downside risks include weaker compliance with the oil producers' agreement to restrain output or outright termination of the accord, rising output from Libya and Nigeria, and a quicker-than-expected rise in shale oil output.

World Bank Senior Economist and lead author of the Commodity Markets Outlook John Baffes said oil prices have more than doubled since bottoming in early 2016, as the large overhang of inventories has been reduced significantly.

"Strong oil demand and greater compliance by the OPEC and non-OPEC producers with their agreed output pledges helped tip the market into deficit," he said.

The report said upside risks to the metals price forecast include more robust global demand than expected.

It said supply could be held back by slow incorporation of new capacity, trade sanctions against metals exporters, and policy actions in China.

Meanwhile, downside risks include slower-than-expected growth in major emerging markets, the restart of idle capacity, and an easing of pollution-related policies in China.

Precious metals are expected to climb 3% this year in anticipation of US interest rate increases and higher inflation expectations, it said.

As at the time of writing, Brent crude oil was trading at US$73.02 per barrel.