World Bank forecasts prices rising next year as oil output is reduced

The World Bank has raised its forecast on crude oil prices as members of the Organisation of the Petroleum Exporting Countries (OPEC) appear headed to agree to limit production.

In its latest Commodities Market Outlook, the bank is projecting a modest recovery of prices to $55 (Sh5, 575) a barrel, up from an average of $43 (Sh4,372), as the market re-balances and Opec ends a long period of unrestrained output.

“We expect a solid rise in energy prices, led by oil, next year,” said John Baffes, World Bank’s senior economist and lead author of the outlook.

However, Mr Baffes said the outlook is heavily dependent on the details and implementation of the Opec agreement, which World Bank believes, if carried through, will undoubtedly impact oil markets.

UNRESTRAINED PRODUCTION

Oil prices jumped in late September when Opec members announced a plan to limit output. The details of this agreement are expected to be made public next month. However, Iran, Libya and Nigeria are likely to be excluded from the agreement because of earlier production losses.

The members agreed to set crude oil output at not more than 33 million barrels a day, effectively ending two years of unrestrained production, and to start negotiations with non-Opec members. This would mean each of the 14 members cutting production by at least one million barrels per day.

Mid this month, Opec said its oil production had climbed to an eight-year high of 33.4 million barrels a day.

The organisation also forecasts non-members will raise supply, leading to a larger surplus next year, which explains the need to involve them in negotiations.

Opec members must agree on individual member quotas, base periods for any cuts, the timing of implementation and at what level excluded countries would cap production.

This plan, if implemented, would be the first production cut since 2008 for the body, which accounts for one-third of global production.

The International Energy Agency said last month that world oil stock piles would persist into late 2017, making it a fourth consecutive year of supply glut.