A Review of the Nigerian Energy Industry

World Bank raises forecast for 2015 global oil prices, commodity prices to remain low

World Bank headquarters.
World Bank headquarters.

Oscarline Onwuemenyi,
with agency reports

25 July 2015, Sweetcrude, Abuja – The World Bank is nudging up its 2015 forecast for crude oil prices from $53 in April to $57 per barrel after oil prices rose 17 per cent in the April to June quarter. The forecast was contained in the bank’s latest Commodity Markets Outlook released this week.

The bank said energy prices rose 12 per cent in the quarter, with the surge in oil offset by declines in natural gas and coal prices. However, it said it expected energy prices to average 39 per cent below 2014 level. “Natural gas prices are projected to decline across all three main markets including the United States, Europe and Asia. “Coal prices are likely to fall 17 per cent,” it said.

Excluding energy, the bank reported a two per cent decline in prices for the quarter and forecast that non-energy prices would average 12 per cent below 2014 levels this year.

“Demand for crude oil was higher than expected in the second quarter. Despite the marginal increase in the price forecast for 2015.

“Large inventories and rising output from OPEC members suggest prices will likely remain weak in the medium-term,” said John Baffes, Senior Economist and lead author of the report.

The bank said Iran’s new nuclear agreement with the US and other leading governments, if ratified, would ease sanctions, including restrictions on oil exports from Iran. It said downside risks to the forecast included higher-than-expected non-OPEC production supported by falling production costs and continuing gains in OPEC output.

“Possible upside pressures from closure of high-cost operations as the number of operational oil rigs in the US remain down 60 per cent since its November high.

In a special feature assessing the roles played by China and India in global commodity consumption, the Outlook finds that demand from China and, to a lesser extent, India, over the last two decades significantly raised global demand for metals and energy—especially coal—but less so for food commodities.

China’s consumption of metals and coal surged to roughly 50 percent of world consumption, and India’s to a more modest 3 percent for metals, and 9 percent for coal. These patterns reflect different growth models and commodity consumption patterns in the two countries.

The bank pointed out that if the two countries catch up to OECD levels of per capita commodity consumption, or if India’s growth shifts towards industry, demand for metals, oil, and coal could remain strong. In contrast, given that the level of per capita consumption of food in China and India is already comparable with the world, pressures on food commodity prices are likely to ease as their population growth—one of the key determinants of food commodity demand—slows.

“China and India have played a significant role in driving global consumption of industrial commodities especially since the early 2000s. Going forward, while demand from India is likely to be a major factor in shaping consumption of industrial commodities, China will be important in driving global demand for energy given its efforts in rebalancing growth,” said Ayhan Kose, Director of the World Bank’s Development Prospects Group.

Commodity Markets Outlook also provides detailed market analysis for major commodity groups, including energy, metals, agriculture, precious metals and fertilizers.

Metals prices declined marginally in the quarter as most are still in surplus, particularly iron ore where prices are off two-thirds from their 2011 high. The World Bank projects metals prices to average 16 percent below 2014 levels this year, revised downward from 12 percent in April.

The largest decline is expected for iron ore (down 43 percent) due to new low-cost mining capacity coming online this year and next (mainly in Australia). Metals markets are adjusting by closures of high-cost operations and reduced investment. Markets will eventually tighten, in part due to large zinc mines closures, and as Indonesia’s ore export ban weighs on supplies, notably nickel.

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